If your organization maintains any fixed assets, your accounting manual should detail your capitalization and depreciation policies. Include details about:
- What purchases do you capitalize? What are the minimum dollar value and useful life of assets that are capitalized? How do you differentiate between repairs and maintenance that are expensed when they occur, and those that extend the life of the asset being maintained and should thus be capitalized?
- What depreciation method do you use, e.g. straight-line, 150% declining balance, or 200% declining balance?
- How frequently do you post depreciation?
- What useful life do you assume for depreciable assets? This will vary based on the type of asset, e.g. buildings, leasehold improvements, computer hardware and software, furniture, equipment.
- Do you maintain a log or schedule of fixed assets, including their purchase prices, acquisition dates, accumulated depreciation, and book value? Who maintains this log?
- Do you periodically do an inventory of assets to make sure nothing has been lost? The inventory process should also confirm if assets have been retired or disposed of.
- Do you review the condition of assets to determine if any have been damaged or impaired, and their value should be written down?
Check here for additional topics to cover in your accounting manual.