Auditing Fixed Assets Versus Receivables
Auditing fixed assets versus receivables: What’s the difference? To find our answer, let’s start by defining each term.
Fixed Assets Defined
Fixed assets are long-term tangible items that help generate revenue for an organization but aren’t sold for profit; nor can they be converted easily into cash, sold to customers or held for investment purposes. The assets have a useful life of at least one year and are recorded on the organization’s balance sheet. Fixed assets depreciate throughout their lifecycles. One of the most important aspects of fixed assets, according to the Corporate Finance Institute, is that “they are closely looked at by investors when deciding whether to invest in a company.” Further, “companies that more efficiently use their fixed assets enjoy a competitive advantage over their competitors.” Examples of fixed assets include buildings and office space, office furniture, IT equipment, company-owned or leased vehicles, equipment and tools, and office supplies. What constitutes a fixed asset at one organization may not at another organization – it depends upon the nature of the business.
Now, what about receivables – what are those? According to Investopedia, receivables, also known as accounts receivable, “are debts owed to a company by its customers for goods or services that have been delivered or used but not yet paid for.” Receivables are recorded when the item or service has been delivered to the customer but not yet paid for, and will subsequently decrease upon the customer’s payment. Any organization that allows its customers to buy goods or services on credit will have receivables on its balance sheet.
With that information in hand, then what’s the difference between auditing fixed assets versus receivables? Your accounts receivable is considered an asset – and it’s often among the largest assets you have. In both cases, you’re checking your records against what you observe with a physical inspection, whether conducted by yourself or with the help of a professional auditor. There are details specific to fixed assets and respectively to receivables that you must verify. SmallBusiness.Chron.com provides a good overview of basic accounting procedures for fixed assets, while AccountingTools.com provides a helpful list of receivable audit procedures you may wish to review if you’re new to the process.
The Audit Process
If you’ve never conducted or participated in a formal audit before, the process can be daunting. It will quickly expose any errors or gaps in record keeping. At the same time, an audit provides you insight into what you can do to clean up your asset tracking and accounting procedures. The long-term payoff is significant. Not only will your records be more accurate, but you’ll also save yourself from potential fines and other penalties come tax time. You’ll also save money because, with thorough records about what you own, what condition it’s in and where it’s located, your assets won’t fall through the cracks anymore. From a receivables standpoint, accurate and thorough recordkeeping means that unpaid items won’t fall off your radar screen and hurt your bottom line.
The most effective and efficient way to audit fixed assets and receivables is with the aid of a platform that allows you to outsource that function. With Asset Panda’s easy-to-use mobile app, you can conduct fixed asset audits wherever you are, whenever you’d like – and all you need is the smartphone you already carry.