There are a few key points that you need to know about assets as they affect financial reports. Here they are:
Assets help show how much your company is worth.
Investors, bankers and other creditors take interest in the amount of assets on a balance sheet. The main reason is because they want to determine what is in the company or organization that can be sold to pay off debt. That’s why depreciation is also an important aspect of reporting an accurate number for the total assets of a company. A creditor wants to know how much he or she could get back by selling the assets of the company.
They need to be legitimate, verifiable and have an accurate value.
It’s really easy to fall into the temptation of inflating values in your asset reports, but don’t get caught up in that temptation. You really should want to know the accurate number of your organization’s assets. You also really should want to keep the numbers accurate, especially if you are dealing with creditors. If you don’t state the correct value, your creditors may have the right to “call the note”. That’s a fancy way of saying that the creditor may choose to make you pay back the loan immediately. Additionally, you report your assets and the depreciation they create within your organization’s annual tax forms. Lying to the government is never a good or a wise idea. Avoid temptations to make up numbers.
Managing and tracking them is critically important.
For some people who think that they don’t need to track these areas, it’s a dangerous option to forget to record the buying and selling of assets. This can be a big mistake. Business owners don’t want to ignore the big equipment purchases or sales for the effects on accounting and taxes. You don’t want to understate or overstate the values, especially when are dealing with intangible ones that take a little bit of work to figure out the value.