In accounting, fixed assets are physical items of value that are owned by a company. They last a year or more and are used to help a company operate. Examples of fixed assets include tools, computer equipment, and vehicles. You can't have both, if the tool costs a lot (lathe, drill, etc.), then it's a fixed asset and is subject to amortization.
The purchase of equipment is not counted as an expense in one year, but rather the expense is spread over the life of the equipment. From an accounting point of view, equipment is considered capital assets or fixed assets, which the company uses to make profits. The equipment is an asset, but not a current asset. Instead, it is considered a non-current asset.
Many contractors realize that just having a tool inventory record doesn't solve all tool management problems. When the tools are ready to be used, they are tested or certified by an automotive manufacturer, they meet all legal and technical requirements and, generally, once mass production has started, they must be capitalized in account 022 Individual movable assets and amortized through the expense account 551 Depreciation of intangible and tangible fixed assets. However, if you're referring to a different type of tool within the product, you can check out these various articles to familiarize yourself with the processes. It is appropriate for an entity to incorporate the selected method of recognizing tools, including relevant arguments, in its internal regulations that allow a sufficient understanding of the specific characteristics and an evaluation of the appropriateness of the approach selected by the entity.
Let's analyze the individual approaches to accounting for tools by a subcontractor who needs them to produce components in series for their customer, that is, this situation requires monitoring the risk that, due to the lack of orders or production, there will not be a sufficient number of components in series to compensate for the loss of tools caused by the increase in the sales price. Most CFOs start capitalizing on assets at a level that excludes the value of most tools, so the tools end up being spent on expenses. So what can you really do to effectively track tools at the enterprise level while remaining affordable? We've heard many times that keeping track of the tools in an Excel spreadsheet just doesn't work, especially when it comes to accounting for who last had a given tool. The challenges and difficulties include the entity's options to maintain detailed and complex records of the tools and the possibility of linking them to the accounting system.
In addition to the ownership of the tools, the method by which a subcontractor is paid for the purchase of the tools is fundamental. So yes, a drill, a pneumatic hammer, that kind of thing, but also small hand tools like hammers and screwdrivers. Provisions relating to tangible fixed assets, inventory, and complex deferred expenses apply to individual accounting procedures related to valuation, recording, depreciation, inventory taking, etc. In such a situation, the subcontractor recognizes the costs of acquiring tools in accrual amounts through complex deferred expenses.
It makes employees responsible for the tools assigned to them and also makes it easier for employees to exchange tools without having to store them back in a tool crib.