Asset Analysis in Accounting Key Terms

Learning the key terms used in asset analysis accounting

By Trisha Schulz

Conducting business requires a certain amount of capital investment in tangible assets such as equipment, materials and facilities. The management and accounting of those fixed assets is important to keeping your books in order. Those fixed assets are separated into short- or long-term assets and certain issues need to be taken into account such as depreciation and costs to prepare an asset for use. To cover all of your bases, learn these key terms relating to asset analysis in accounting.

Fixed assets

A fixed asset is one that is mostly tangible. The asset won't be converted to cash in the current or next fiscal year. Examples of fixed assets include office furniture, real estate, and equipment.
Try: Check out this example of long-term capital asset recognition from the National Association of College and University Business Officers.

Depreciation

When an asset loses its value over time, it depreciates. Asset accounting takes depreciation into account when pro-rating an asset over the period of time it is useful.
Try: Review this example of depreciation and straight-line depreciation from BusinessTown.

Sinking fund

A sinking fund is when an annuity is set up with the depreciation expense of a fixed asset. The end goal is to have the annuity's amount at the end of its term equal the acquisition cost of the fixed asset.
Try: Get a real-life example of a sinking fund by using this calculator from the EPC Server.com.

Amortization

Amortization is the method used to recover the costs associated with depreciation. In asset accounting, amortization is used to write off the asset over time, usually the life of the asset.
Try: Learning Link Finders provides an additional definition and example.

Sarbanes-Oxley Act

A 2002 U.S. federal law, the Sarbanes-Oxley Act, established rules, regulations, and standards. These standards are for public companies' accounting firms and include 11 reporting requirements. The law also set up an accounting oversight board to oversee audits.
Try: The American Institute of Certified Public Accountants provides additional resources, including searchable text of the Sarbanes-Oxley requirements.

Cost segregation

Cost segregation refers to separating costs into specific accounting categories. This allows for higher depreciation on a subset of your assets, including those deemed to be personal property. The overall effect is a reduction in taxes.
Try: Find out more about cost segregation services through Real Asset Management.