The document discusses fixed asset systems and their differences from inventory systems. Fixed asset systems process transactions for acquiring, maintaining, and disposing of long-term assets like land, buildings, and equipment. They record asset costs, depreciation, and location. Fixed asset transactions require approval since assets are long-term investments, unlike routine inventory purchases. Additionally, fixed assets are capitalized and depreciated over multiple periods, unlike inventories which are expensed immediately. The document also describes the acquisition, maintenance, and disposal processes in a computerized fixed asset system and the authorization and verification controls used.

1. Habib Ullah Qamar
Govt. College of Commerce Gujranwala
5/10/2016

2.  Fixed assets are the property, plant, and
equipment used in the operation of a business.
These are relatively permanent items that often
collectively represent the largest financial
investment by the organization.
 Examples of fixed assets include land, buildings,
furniture, machinery, and motor vehicles.
 What will be the Fixed Asset system?
 Processes transactions pertaining to the
acquisition, maintenance, and disposal of its
fixed assets

3.  Process the acquisition of fixed assets as needed
and in accordance with formal management
approval and procedures.
 Maintain adequate accounting records of asset
acquisition, cost, description, and physical location
in the organization.
 Maintain accurate depreciation records for
depreciable assets in accordance with acceptable
methods.
 Provide management with information to help plan
for future fixed asset investments.
 Properly record the retirement and disposal of
fixed assets

4.  What might be the difference between Normal Inventories
and Fixed assets?
 First, the expenditure cycle processes routine acquisitions
of raw material and finished goods inventories.
 While The fixed asset system processes transactions for a
wider group of users in the organization.
 Managers in virtually all functional areas of the
organization make capital investments in fixed assets, but
these transactions occur with less regularity than inventory
acquisitions.
 Because fixed asset transactions are unique, they require
specific management approval and explicit authorization
procedures.
 In contrast, organizations often automate the
authorization procedures for routine acquisitions of
inventories.

5.  The second difference between these systems is
that organizations usually treat inventory
acquisitions as an expense of the current period,
while they capitalize fixed assets that yield
benefits for multiple periods.
 Because the productive life of a fixed asset
extends beyond one year, its acquisition cost is
apportioned over its lifetime and depreciated in
accordance with accounting conventions and
statutory requirements.
 Therefore, fixed asset accounting systems
include cost allocation and matching procedures
that are not part of routine expenditure systems

6.  Asset acquisition
◦ New need or replacement
◦ Authorization and approval
◦ May involve cost-benefit analysis
◦ Acquisition is similar, with asset handed over to manager not to
store, and FA department will keep the records rather than
inventory
 Asset maintenance
◦ Asset maintenance involves adjusting the fixed asset subsidiary
account balances as the assets (excluding land) depreciate over
time or with usage. (depreciation schedule)
 Asset Disposal
◦ An asset has reached the end of its useful life or when
management decides to dispose of it, the asset must be removed
from the fixed asset subsidiary ledger. The bottom left portion of
Figure 6-11 illustrates the asset disposal process

7.  Figure 6-13 illustrates a computer-based fixed asset system,
which demonstrates real-time processing
 Acquisition Procedures
◦ Fixed asset accounting clerk receives a receiving report and a cash
disbursement voucher
◦ Creates a record of the asset in the fixed asset subsidiary ledger
◦ the record contains data specifying the asset’s useful life, its salvage
(residual) value, the depreciation method to be used, and the asset’s
location in the organization
◦ automatically updates the fixed asset control account in the general
ledger and prepares journal vouchers for the general ledger
department
◦ The system also produces reports for accounting management. Figure
6-15
◦ Based on the depreciation parameters contained in the fixed asset
records, the system prepares a depreciation schedule

8.  Asset Maintenance
◦ calculating the current period’s depreciation,
◦ updating the accumulated depreciation and book
value fields in the subsidiary records,
◦ posting the total amount of depreciation to the
affected general ledger accounts (depreciation
expense and accumulated depreciation)
◦ Recording the depreciation transaction by adding
a record to the journal voucher file.
◦ Finally, a fixed asset depreciation report, shown
in Figure 6-16, is sent to the fixed asset depart-
ment for review.

9.  Disposal Procedures
◦ Posts an adjusting entry to the fixed asset control
account in the general ledger
◦ Records any loss or gain associated with the
disposal
◦ Prepares a journal voucher.
◦ A fixed asset status report containing details of
the deletion is sent to the fixed asset department
for review.

10.  Authorization Controls
◦ formal and explicitly authorized
◦ an independent approval process that evaluates the merits of the
request on a cost-benefit basis
 Supervision Controls
◦ management supervision is an important element in the physical
security of fixed assets
◦ Supervisors must ensure that fixed assets are being used in
accordance with the organization’s policies and business practices
 Independent Verification Controls
◦ internal auditor should review the asset acquisition and approval
procedures to determine the reasonableness of factors used in the
analysis
◦ The internal auditor should verify the location, condition, and fair
value of the organization’s fixed assets against the fixed asset
records in the subsidiary ledger. In addition, the automatic
depreciation charges calculated by the fixed asset system should
be reviewed and verified for accuracy and completeness.

11.  The chapter began with an examination of payroll
procedures. The discussion focused on fundamental tasks;
the functional departments; and the documents, journals, and
accounts that constitute the payroll system. Common
exposures and controls that reduce risks inherent in payroll
activities were explained. In addition, we reviewed the
operational features and the control implications of
technology used in payroll systems.
 The second section of the chapter presented the typical
features of the fixed asset system. Fixed asset accounting
involves three classes of procedures: asset acquisition, asset
maintenance, and asset disposal. We examined the files,
procedures, and reports that constitute the fixed asset
system. We concluded our discussion by reviewing the
principal risks and controls in the system.

12. Accounting Information
System..by
James a Hall
Chapter 6 : Expenditure Cycle
II
http://theITeducation.com/

13. See you again in sha ALLAH
5/10/2016