Management InSites

The Importance of Depreciation and Asset Management

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.

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How can we help you?
Contact us or submit a business inquiry online.
Read more
  • To Palletize or Not to Palletize?

    When it comes time to ship inventory to the United States, many foreign companies are unaware of the standards surrounding palletizing their shipments. While it is possible to ship a container oversees without pallets, it might not be the most cost-effective solution, especially when using an established warehouse or 3PL.

    October 4, 2021
  • Breaking Into the U.S. Water Sector: The Vast U.S.A.

    When considering entry into the U.S. market, it is imperative to remember how vast the U.S. is. While the water in most areas of another country with a small geographic footprint might be similar to one another, that is not the case here.

    July 26, 2021
  • The Changing World of 3PLs

    Third-party warehouses (3PLs) have historically provided companies with an invaluable service: the ability to store inventory and ship it out to customers around the globe. These warehouses are experts at packaging products to maximize order fulfillment.

    July 1, 2021
  • International Shipping and Incoterms

    When dealing with shipping internationally, especially from abroad to the U.S., setting the terms of the transaction from the moment the customer requests a quote is incredibly important. To avoid problems, unwanted costs, and even potential legal issues, there should be no room for confusion or ambiguity in the contract you set up with your customer.

    March 8, 2021
How can we help you?
Contact us or submit a business inquiry online.

The Importance of Depreciation and Asset Management

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.