Q & A With Guest Blogger Mary Balmer Part 1

1. In your opinion, why on earth would a company continue to use a spreadsheet for fixed asset accounting? It seems like doing so would lead to countless errors!

I think the thing that they like best about spreadsheets is the flexibility, the way they can manipulate the data in the spreadsheet. The downside is that there are no rules built in. It’s only as good as the formulas that they put in. So if there’s an error in the formula, then obviously their number is not going to be accurate. And so, the risk of errors goes up if they use something like that. But, you know, again, it’s the flexibility that they’re going for there.

2. How would you explain the difference between a fixed asset and a normal asset?

It’s a good question because it really begs you to look at the definition of what a fixed asset is. And a fixed asset, for our purposes, means an asset that is used for a trade or business to use to produce income. It’s owned by the business. It’s tangible. You can touch it. You can feel it. It has an estimated useful life. And so, if you look at some assets that may not fall into that category, it may be an asset that is not used by a business. I mean, an asset is an asset is an asset. And then you say, “Okay, is this asset depreciable,” right? And in order for it to be depreciable, it has to fall under that definition of a fixed asset—be owned by a business, used for a business. It has to have a determinable useful life. There are some assets that are owned by a business but you cannot determine the useful life of [that] asset. If it does not have a determinable estimated life, you can’t depreciate it. One very good example of that is land. Land is here as part of this planet. It’s going to be here forever. So you can’t put a defined period of time on it. And that is why we don’t depreciate land. I personally own land, but I know that it doesn’t fall into that category of fixed asset. Because it’s just my own personal land—my little plot of land that I own, that my house sits on. So, while that’s an asset, my own land is an asset, and then the land that this building sits on is also an asset… you know, when you’re looking at why is one just an asset and one’s a fixed asset, I guess you can draw that line and say, “Well, a fixed asset is something you consider to be an asset used by a business.”

3. What do you think are the top 3 misconceptions when it comes to fixed asset software?

Misconceptions. Hmm… I don’t know that there are any misconceptions because I think that it is pretty straight forward. You know, people know what they’re getting into. I think that it isn’t a misconception with the software itself but I think what people believe is that spreadsheets are good enough. And they’re really not. And the reason is not for financial purposes. It’s for tax purposes. It doesn’t give them that knowledge of how depreciation should work for tax purposes year after year after year because the regulations change so much. There’s no way the average person could keep up with all those changes. And if they use spreadsheets, they would have to do that because they would have to go into the spreadsheets and modify their calculations, and these calculations may be based on the day an asset is placed in service. So, it gets really tricky to do that in Excel. And so, I think, the misconception is not with the software itself but what they think is an okay tool to use for that purpose of depreciating assets. And that would be a misconception if they felt that Excel was good enough because it really isn’t. There’s no way anyone could know or keep up with… you know, the average person… could keep up with all the changing rules and regulations. But, again, this is really specifically for tax purposes because it doesn’t change too much in the financial side of things.

4. When I say ‘depreciation’ what’s the first word that comes to mind?

Well, [laughs] there are several words. I’ve been doing fixed assets depreciation for a long time. So when you say depreciation to me it’s recovering the cost of the purchase of an asset. I mean, that’s really what you’re doing instead of [buying an asset]… let’s say this desk. Okay. I expect this desk to be around to help me do my business, help me generate that revenue I’m making over a period of years. So, for tax purposes, if I were to take the total cost of this desk and deduct it on my tax return in the year of purchase, it’s not really good matching of cost to revenue, right? Because it’s really, the cost of this desk, since it’s going to be useful to me over, let’s say, seven or ten years… doesn’t it seem more logical then to divide up the cost of that asset over seven to ten years? Over that period of time that it’s actually going to be useful to me and my business? And that’s what depreciation is all about. It’s allocating the cost of a piece of equipment or an asset over the life of the asset, how long you think that asset is going to be useful to you in helping you generate revenue for your business. So that’s why when you say depreciation, it’s not just one word, but you know, it’s just that allocation of the cost over the estimated life of that asset.