Archive for July, 2010
The Fixed Asset Register: A Beginners Guide
Within the wider framework of keeping a company’s books there sits a plethora of different accounting methods and record keeping processes that have to be used. Some because there is a statutory requirement, others by virtue of good common sense. Into the first category falls the FAR or ‘Fixed Asset Register’, the Companies Act of 1956 means that it is mandatory for companies to maintain a Fixed Asset Register as part of their general business bookkeeping.
The Fixed Asset Register is quite simply a record of the chunk of a company’s assets that constitute its ‘fixed’ assets; fixed is the term used to describe assets which cannot easily be converted into cash and are not held for the purpose of selling them on; assets that are owned to enable a business to function, either to provide a service or produce a product; in the case of manufacturers it is usually machinery, land, property etc. and for service providers, equipment and premises; it can also include less tangible assets such as copyrights, patents and trademarks.
The reasons for the existence of an individual register of this kind are many; the Government’s interest lies mainly in always knowing the value of a company’s fixed assets for taxation purposes, hence the legislation, but there are other benefits to knowing the separate costs of such assets not least for the purposes of a company’s insurance.
However this record is not a simple list, it collects very specific data in a precise and detailed way and the way that it is recorded can tell those who understand FAR a lot at a glance. In addition to detailing the nature of a company’s fixed assets, the bookkeeper must account for loss or impairment of assets as well as logging the ongoing condition and changing value.
Keeping track of the exact origins of large assets can be problematic for the person keeping the records, as it can involve physical verification, which, as the name suggests would mean physically finding and visiting each piece of equipment or building to confirm its existence and location; most bookkeepers therefore ‘tag’ each asset in the register with an engraved alpha-numeric identification number to make tracking simpler; of course in the case of land and vehicles there will conveniently already be independent registration numbers.
Part of the recording process includes logging the assets’ value in the form of an assigned ‘carrying cost’, in order to do this a valuation has to take place; the carrying cost is usually set at either the current market value, the potential sale or realisable value or the distress sale value, which basically refers to an asset’s scrappage value.
Most bookkeepers and accountants who have the task of maintaining the Fixed Asset Register do so nowadays with the help of specially designed computer software; these programs can produce reports on demand and collate large amounts of information. Although they do not necessarily make the job of keeping the FAR up to date a simpler one, they certainly can make it less time consuming, which in turn helps with the accuracy of these important and required records.
Taking Stock: Exercise Good Stock Control
If your business is one that produces a physical product to sell on to customers, stock control will be at the forefront of everything you do. At any one time you will need to have a grasp of your stocks of supplies of raw materials needed for the production of your product, stocks of incomplete products still being made and of course the stocks of finished products ready to sell.
A vital balancing act takes place in order to minimise holding costs, whilst ensuring that stocks of sale-ready products do not run low and this balancing act involves everyone from the stock controllers and purchasers to the marketing department. Sales forecasts from the marketers help the purchasing department estimate what stocks of raw material to buy in, but everything from seasonal variations to unexpected demand can send this sort of careful planning in to mild chaos.
Although most companies will keep extra stock in to prevent running short, not all industries allow for this possibility and the stock control dance becomes even more delicate. Those manufacturers who produce perishables for instance cannot necessarily sit on large quantise of either ingredients or finished product, as the life of their product may be limited.
Getting your stock control system wrong can result in expensive overstocking, or ‘stock-outs’ where you cannot meet customer demand. Overstocking will mean having to find money to pay for warehouse space to store stock as well as insure and secure it all of which could result in cash flow issues. Allowing raw materials to run out could result in having an idle workforce or loosing customers who may reach out to a rival supplier for help and give their business to your competitors.
If you are a small business the issues of stock control become even more significant and yet even more difficult; cash flow is of course important to all firms, but to a small business a cash flow crisis could mean its demise. The small business relies on its customer base for survival and having to close its doors for any length of time could result in a loss of hard won customers that again could majorly damage trading.
In these days of technological wonder it is probably wise, regardless of your size, to utilise a computerised stock control system that can keep track of every stock stream at once and product almost instant reports for the various departments that need them; these systems can also help the small business owner to run complex stock control without the help of others.
There is no one single method of stock control, rather, there are many, with a few standing out because of their common use and general success, and it is choosing the right method for your business that is the key to making stock control work for you.
Whether you opt to use a popular system of stock control or one you have devised yourself it is important to make a decision early in the life of your business and stick to it, most disasters can be prevented by being consistent and following through with your plans.