The Importance of Depreciation and Asset Management
- January 7, 2021
- Posted by: Management inSites
- Categories: Accounting, Bookkeeping, Finance & accounting, Insites
In a previous post, we discussed the importance of maintaining good accounting and bookkeeping practices. One aspect of proper bookkeeping includes tracking depreciation and asset management.
If your company is new to the U.S. market, it is essential to know that GAAP (Generally Accepted Accounting Principles) stipulates that “companies are not permitted to expense the cost of a long-term asset when they purchase the asset. Rather, they must depreciate or spread the cost over the asset’s useful life.”
What is depreciation?
According to the Internal Revenue Service (IRS) website, “[d]epreciation is an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. It is an allowance for the wear and tear, deterioration, or obsolescence of the property.”
Items to be depreciated are fixed assets, which appear on your balance sheet and contribute to the overall worth of your company. Intangible items, such as patents and trademarks, also depreciate over time. They, however, are amortized, which is to have the initial cost of an asset gradually written off over a period.
Depreciation is a process of allocation, and not valuation, according to Accounting Standards Codification (ASC). Since items intrinsically lose value, it is unreasonable to expect that a large item (like a vehicle or a building) is going to maintain its value from one year to the next. (Land is an exception, and it does not depreciate. Inventory is also not included, since it rotates.)
Ultimately, depreciation is used to recover the cost of your company’s fixed assets through the act of expensing a portion of the initial cost year after year. It allows your company to financially benefit from the value of the item over the course of its useful life.
You, along with your CPA (Certified Public Accountant), should decide which depreciation schedule is right for you and your various assets. But some general industry guidelines with regard to useful life estimates include the following:
- Computers – 5 years
- Vehicles – 5 years
- Science and Engineering equipment – 10 years
- Audio/Visual equipment – 10 years
- Fencing – 20 years
Depreciation schedules vary from country to country, so you should not rely on the schedule with which you are familiar from the home country of your parent company.
The Importance of Depreciation and Asset Management
- January 7, 2021
- Posted by: Management inSites
- Categories: Accounting, Bookkeeping, Finance & accounting, Insites
In our previous post on the topic, we covered some important things to remember when setting up your company in the U.S. market. Beyond operations, sales, and marketing, a manager would be remiss not to focus on how cultural differences might impact the success of a subsidiary.
The U.S. is not homogenous
Unlike several other countries, the U.S. is vast – and not just in its size. Americans tend to break up the country into its East and West coasts, and the Midwest. But there are even more segments, like the South, Pacific Northwest, the Northeast, Florida, and Texas – all of which differ greatly from each other. There are several big cities, countless medium-sized markets, and even more rural or suburban areas. Interacting with people living in big cities will differ greatly from interacting with people in smaller towns. While it would be unwise to generalize, it is best to understand the culture of the part of the U.S. in which you are doing business before having expectations.
Patience is not always a strength among Americans
When in negotiations or conducting business, Americans tend to want to just get the deal done. While many other cultures take their time, get to know everyone involved, and move along at a comfortable pace, those in the U.S. do not always see a need to drag things out. Get ready for what looks like impatience, when in reality it is just a desire to be efficient and effective.
Don’t plan on in-person meetings
At least not all the time. The tendency for Europeans and Asians to conduct most business in person is not the same in the U.S. Phone calls, emails, and now even video conference calls are the norm. Businesspeople like to work efficiently, and don’t gather in person unless it is necessary. First meetings, larger negotiations, and important topics are generally discussed in-person. Otherwise, don’t be offended or surprised if many of your interactions are taking place remotely.
Open-minded over traditions
A positive aspect of Americans in general is their ability to have an open mind. Many other cultures rely heavily on traditions, and act in certain ways because history dictates that they should. That is not the case in the U.S. Americans tend to welcome new ideas and concepts perhaps more freely than their foreign counterparts.
That being said, Europeans tend to rely on strongly forged bonds in which trust is paramount. Loyalty is key. Americans tend to be looser and more pragmatic when it comes to doing business. They don’t necessarily need to have known someone for years to begin working with them. At the end of the day, it’s about getting the deal done.