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When determining the useful life of an asset, an organization should consider the frequency and nature of the asset\u2019s use in operations, the condition of the asset at acquisition, its history, and service patterns. Fixed asset accounting refers to the action of recording an entity\u2019s financial transactions for its capital assets. For organizations reporting under US GAAP, ASC 360 is the appropriate accounting standard to follow. For most organizations, fixed assets are a significant investment and must be accounted for properly. A baking firm’s current assets would be its inventory (flour, yeast, etc.), the value of sales owed to the firm from credit extended (i.e. debtors or accounts receivable), and cash held in the bank.<\/p>\n<\/p>\n
The formula for calculating the fixed asset turnover ratio divides net revenue by the average non-current assets, i.e. the average PP&E balance between the current and prior period. This is to reflect the wear and tear from using the fixed asset in the company\u2019s operations. Depreciation shows up on the income statement and reduces the company\u2019s net income. At the end of a fixed asset\u2019s useful life, the business owners can either sell the asset or retire the asset.<\/p>\n<\/p>\n