I have a very tiny tiny janitorial service. When I clean buildings, I see desks and other items that sometimes have a small little metal stamp on them, it looks like it's some form of asset control. My problem is that I've had vacuums disappear, etc...
How does the system I'm seeing work? Do these stamps ID each particular piece of property, and put it in some journal that links into the general ledger?
At what level are items accounted for? e.g. I'm taking an accounting class in a local high school (local college extension course.) It dawned on me as I was sitting there that I could take a chair from the class room, or a desk, and it's possible no one would ever notice if nobody saw me take it. At what level do companies tag and account for physical things like chairs, desks, computer printers, etc...? If it's a $75 plastic chair, I'm guess they expense this right away - so do they track it nevertheless to make sure it doesn't walk out the door (even if the chance is remote).
Every business should track its assets as part of the internal control of the company. Most business people don't know this or don't care and consequently things just "seem to disappear".
These stamps are a serial number the company assigns to each asset and, yes, they are tracked individually (or as part of a lot) in a subsidiary ledger to the capital assets account. While you may guess that a $75 chair is expensed right away, that $75 chair may be part of a $7500 lot of chairs. It is likely that all equipment will be capitalized as it will not be consumed within the year. Yes, small items are often expensed, but only when not purchased as part of a bigger purchase.
For what it is worth, these serial numbers do very little to prevent theft. Sure, they can be an assistance in proving the item is yours if found (and if the tag cannot be removed), but it can't stop them from "walking away." Your best bet in controlling loss is to physically lock up your assets. If you assign them to people for use, have them sign them out with the indication that they are personally liable for signed out assets.
OK, they don't explain this very well in the intro accounting texts. I started reading the IRS rules on assets, I didn't get the Section 179 thing. I've purchased things piecemeal - a desk here, a computer there. Some brooms, some mops, some spray bottles. I can't imagine I'm supposed to make an asset out of something so trivial. Do they expect me to depreciate a plastic spray bottle?
My problem has been that I don't really know exactly what I have out there in my buildings, and consequently, things end up missing and I don't realize until long after the fact. Very stupid on my part, and I'm trying to get control now. I'm talking about things like a $179 air mover, or a $95 vacuum cleaner. I'm thinking about just creating a spreadsheet with a list of the common items I have out there. Even losing spray bottles here and there can make a difference, ever $ counts for me at this point in time. Mostly what I think happens is that they take some toilet paper home, or some trash liners, etc...
So I guess it's a 2-part question: a.) At what point do I need to capitalize these expenses for trivial items that nevertheless last longer than year (e.g. dust mop handles, mop buckets, vacuums) b.) How should I keep track of these items? Identifying specific vacuums might make sense, since each person gets his/her own vacuum. Identifying specific spray bottles doesn't since a spray bottle costs ~$1.50. How are those numbers created on those metal stamps I see? How do these companies decide which items to assign numbers to and which do not get stamps? What do they do with the ones that don't get identified
- do they just hope it stays there?
I expense a mop handle, but that thing can last me 10 years or more. Even if I depreciated in a lot of mop handles, after I take off all the depreciation, the mop handle is still there, still in use, still providing value to me. It's a mop handle I don't have to buy. So my books don't accurately reflect the reality of what I have. Granted, used equipment isn't worth much, but it's worth something. It does keep your operations rolling.
I'm all over the map here, I hope I'm making sense.
Yes indeed, you are making a great deal of sense. What I recommend is a method that has proven quite effective in other businesses.
For a reasonably small price you can obtain a non-toxic spray dye that glows under ultraviolet light. This spray can be applied to the toilet paper. After a long weekend the first thing Monday morning, you should have your employees drop their pants and shine the light on their butts. If it glows, fire them on the spot.
Probably what you need to do is to get a storage building or arrange storage somewhere. Place all these items in that storage area under lock and key which you control. You are confused by the fact that accounting treatment of assets is different from tax treatment of the same assets. The tax law allows a business to expense under Section 179 of the Internal Revenue Code more than $100,000 of assets purchased each year up to the amount of net income (profit) you have in the business. On the other hand, generally accepted accounting principles (GAAP)says you must depreciate these assets over their useful life for financial statement purposes. You are being confused by these two very different concepts as are most small business owners.
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