In our last post we discussed reconciling cash, investments and the related income and expenditures in our closing procedures.
In our post today, each entity should consider having a capitalization policy for property, plant and equipment, as determined by the Board of Directors or Management. A typical policy could state that all items above $1,500 (amount to be determined by management in accordance with reporting needs of the organization), will need to be capitalized or placed on the balance sheet as a fixed asset, instead of being expensed. Examples of property, plant and equipment (PP&E) would include computers and software, transportation, leasehold improvements, land, furniture and fixtures, computer software and buildings.
Some organizations record all disbursements as expenses; except major land and building purchases. If a capitalization policy exists, the entity may want to review the following accounts to ensure that it does not represents a purchase over $1,500 for any property, plant and equipment.
> Office equipment
> Repairs and maintanance (adds significant value (extension of useful life) to asset)
> Computer supplies and equipment
> Office supplies
These items would be included as your additions to PP&E. Besides additions, most entities should be keeping track of disposed assets each month. Disposed assets may have been discarded, donated or sold. If sold, document the date of sale or date of disposition and proceeds (deposits) from sale. The detail fixed asset list should have the date of original purchase, description of asset and purchase price of the asset that was disposed of. This will help document gain/loss on sale.
In our next post addressing year-end closing procedures, we will discuss the differences between an operating lease and a capital lease. – Stay tuned.
Posted by Michelle Francis
