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How do I Perform an Asset Inventory?
As part of a financial year-end process, companies with physical assets typically are required to complete an asset inventory. The purpose of an asset inventory is to physically count and document the location of all assets listed on the financial statement. This process is considered part of the preparation required each year end, and typically is scheduled three to four weeks before the actual end of the year.
There are four items that typically must occur in an asset inventory: review of asset list from financial records, physically inspect each asset, determine if valuation must change, and add any new assets. This process can be simple or complex, depending on the number of assets and their relative location. It is important to note that this inventory can be completed by internal staff or by a third party. The most important part of this inventory is to ensure that each item is physically inspected.
A first step in an asset inventory is to review the list of assets that were included in the financial statements from the prior year. All of the items that were disposed of or dismantled during the year should be removed from the list. A copy of the instruction and valuation of the item at that stage should be added to the file.
The next step is to organize the assets by physical location in preparation for an inspection. In order to prepare, an inventory list should be organized. Each item should be issued a unique number and a method of indicating that the item has been included in the inventory. Some firms use stickers while others use a system of bar code scanning to update the records.
There are two items that usually must be checked during the asset inventory: the existence of the item in the location indicated, and the state of the item. For example, if the item is broken or in disrepair, it should be indicated on the inventory list. This may result in a decreased valuation of the item.
Any new assets that were purchased or acquired during the year must be added to the asset inventory list. Details to be included are the asset classification, description, location, and valuation. Any items that are purchased but not yet on the premises can be excluded from the asset list, so long as their value is not included in the asset valuation on the financial statements.
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![As part of a financial year-end process, companies with physical assets typically are required to complete an asset inventory.]()
By: DragonImagesAs part of a financial year-end process, companies with physical assets typically are required to complete an asset inventory. -
![The goal of an asset inventory is to physically count and document the location of all assets listed on the financial statement.]()
By: Tyler OlsonThe goal of an asset inventory is to physically count and document the location of all assets listed on the financial statement.
Discussion Comments
Whenever you are talking about asset inventories for a big company, how do you know that they are truthful in their assessment of goods?
For example, you have to calculate depreciation on equipment every year. What is to stop a company from just saying that equipment is in worse shape than it really is? Is the only disincentive the fact that they might get audited? What is the likelihood of this happening, and is there any way that the IRS can guess from financial statements whether a company is lying or not?
I know in business they also talk about fixed and liquid assets. I think fixed are things that are supposed to be held for the long term and liquid might be sold soon. Do these two things have any sort of effect on how the inventory and depreciation are calculated?
A few friends and I have just opened up our own consignment shop and we were a little curious about how asset inventories should be done to be the most efficient.
Right now, we just have all of our information in a spreadsheet. Luckily, we don't really have a lot of things to consider assets. It is basically just a couple of computers, a cash register, and the normal things you might expect. We would really like something that is a little more professional, though. Does anyone know of any good free asset inventory software that you can download online?
For anyone who has done this before, do you have any tips for making the inventory process simpler or more streamlined?
@JimmyT - Interesting point. I know when I was younger and worked at a restaurant, once a year a corporate person would show up to check on everything. They were very strict about things, too. If there was anything missing, they always asked a lot of questions to figure out where it went.
I guess the purpose was twofold. On one hand, you want to make sure people aren't stealing things, and on the other hand, you want to make sure that the managers are doing their job and keeping track of all the necessary paperwork. Losing a knife might not be a big deal, but not tracking equipment might be a sign of a bigger problem.
I don't remember for sure, but I want to say that the person that did our inventory asset tracking was from the financial department. I guess because the results ultimately end up going toward tax purposes.
@NathanG - I think a lot of who conducts the inventories depends on the place, too. When I was a graduate student, we had one of the lab people whose job it was to keep track of all the equipment and do all the things that the article mentioned.
We had the bar code system, so she would just come in with a scanner and go down the list of all the things we should have, scan the bar code, and then make a note of whether it was in good working order or not.
I am sure universities are a little different, since every department and every professor is a little autonomous, but depending on where the money came from to buy the equipment, sometimes you wouldn't have to register the purchase in the system. That can turn into a bit of a problem when a professor retires or when equipment comes up missing.
@everetra - I don’t think it’s the QA managers who conduct that process. From what I understand, QA analysts are involved in inspecting goods that are about to be shipped out to market. They are involved in the manufacturing process.
In the case of asset management, we’re dealing with assets that the company has on hand, not things they are about to ship out. My guess is that it would be whoever who is responsible for the department where the assets are stored.
So if you’re talking about IT inventory asset management then it would be individuals in IT. I don’t know the exact titles of the individuals but I am thinking they would be warehouse supervisors or something like that.
@hamje32 - I wonder who conducts the asset inventory management process? I keep thinking that you have someone like a quality control inspector, especially at the inspection phase where you are reviewing the asset to see if it’s good or not. That would make sense since these individuals are usually trained and qualified in quality management procedures.
@allenJo - That’s a good point and I think it’s especially relevant when it comes to IT asset inventory management in particular.
The reason is that IT equipment can depreciate very quickly. I run a side business where I list my computer as an asset in my business, and as part of my expensing I have to determine the depreciation of my computer and report it on the tax form.
I can tell you it doesn’t take long for computers to undergo significant depreciation. The computer is still functional, but every two years it becomes close to obsolete because of the rapid advances in new technology.
Consider how important assets and liabilities are on financial statements, I can see that this would be a very important task indeed. Ideally I think that you would want assets to exceed liabilities in order to ensure that your business is doing well.
I’ve heard of companies making financial restatements after their initial financial statements are issued. I don’t know all of the factors that would effect a financial restatement, but clearly assets that were no longer in use or functional could certainly be one factor.
I believe this is especially true when you consider the evaluation of the asset. Barring a situation where an asset is clearly not functional, evaluation might be a little subjective and could skew your numbers one way or the other.
Good asset inventory management would define clear cut methods for evaluating the asset I would think.
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