Terminology of the Asset Life Cycle – Entry 4

While information can take many forms and be used for many reasons, our focus will be placed on the bare minimum required to track, manage and report on capitalized fixed assets.  It is equally important to identify several terms we will use.

These include purchase and installed costs, accumulated and current depreciation, useful life and fixed asset register.

Purchase cost represents the value paid to buy the asset whereas the installed cost represents the value recorded into the financial fixed asset register. Installed cost typically includes the purchase cost along with other costs incurred in order to make the asset fully functional, such as the cost to install.

Depreciation represents the decrease in value of an asset over time and the allocation of the cost (decreased value) over a period of time. Current depreciation is the cost at a given point in time that the asset’s value will decrease. Accumulated depreciation represents the total cost or value lost to date. The period of time is known as the asset’s useful life.

Capitalized assets are recorded and managed in a financial database referred to as a fixed asset register, also known as a FAR. The FAR information source is critical as it relates to complying with audit and governmental regulations attesting to financial reporting as it concerns capitalized assets.

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