An awful lot can happen from one moment to the next, especially if you're a company with many moving parts. And while a quick glance at two consecutive balance sheets might look remarkably similar to the untrained eye, those line items have a heck of a story to tell, particularly on the fixed asset front.
That's precisely where the fixed asset roll forward – also known as the property, plant, and equipment (PPE) roll forward – comes into play. It tells a story, filling in the blanks between accounting periods, and ensuring all of your fixed assets and the related activity occurring in the interim align with one another.
However, unlike its more popular cousins in accounts payable, receivables, and cash, to name a few, the fixed asset roll forward doesn't get nearly the attention it deserves considering its importance, at least from the non-accounting layfolk. So to right that particular wrong, Embark has created our Excel-based Fixed Asset Roll Forward Template for you to use within your own accounting procedures. Coupled with a discussion of the schedule – and a few best practices for good measure – you'll walk away with a better understanding and far greater appreciation for the fixed asset roll forward's significance in your financial reporting.
The Importance of the Fixed Asset Roll Forward
As you'll see from our accompanying template, the concept behind the schedule is pretty straightforward. It tracks fixed asset historical costs and accumulated depreciation for the fixed assets within the balance sheet, showing the beginning balances, additions, disposals, transfers, and the ending balance in the roll forward report. Think of it as a detailed log of all movement between Point A and Point B, detailing the activity between those two points in the schedule as well as the accompanying asset depreciation.
As businesses become more complex, balance sheets expand, and financial statements balloon, the fixed asset roll forward plays an increasingly vital role in ensuring you properly account for every fixed asset, leaving you with a clean and accurate balance sheet. Take note, however, that while a spreadsheet like our template will serve most newer and smaller companies quite well, a more advanced and comprehensive accounting system could save significant time and effort as those fixed asset line items grow, also eliminating entry errors.
In fact, automated reports in such systems often replace manual entries altogether. That said, whether you use our template or a fixed asset module within a dedicated accounting system, having a clean and simple-to-use tool can maintain sanity for any accountant compiling gross and net assets during reporting. In other words, no matter how many twists and turns the reporting plot might take, you’ll always have a clear and unobstructed window into the overall reporting narrative itself. And that's helpful for accountants and auditors alike.
Fixed Asset Roll Forward Best Practices
As we said, the fixed asset roll forward schedule is fairly self-explanatory. However, plenty can go sideways if you're not meticulous and organized with your entries. Remember, the schedule tracks every fixed asset individually, not as a group, so an efficient but accurate approach will always serve you well. To that point, Embark has a few pointers to keep in mind as you proceed.
Depreciation
Be mindful of each asset's useful life and asset class, and enter depreciation expense accordingly on the roll forward. Granted, this isn't exactly revelatory advice, but you'd be surprised by the common issues plaguing roll forwards and balance sheets. Therefore, if you buy a new building, a straight-line depreciation over a 30-year useful life simply makes more sense than a five-year depreciation method. In short – be logical and organized, mind the GAAP depreciation guidelines in ASC 360, and stay on the good side of the audit gods.
Use a Bucket Approach
There's a time and place for everything in the fixed asset roll forward. Use different buckets to categorize various activities, remembering that purchases and disposals go together about as well as oil and water, particularly concerning cash flow. Thus, separate them into different buckets on the schedule to keep your financials in good order. In the case of purchases and disposals, crossing streams could wreak havoc on an otherwise perfectly fine income statement. And the same holds for insufficient attention when tracking capitalized interest during construction when applicable.
Construction in Progress
Short and sweet–let's say you broke ground on a new facility, but it's not yet in use during a particular accounting period. Place this asset into a separate column–construction in progress–until you put it into use. Don't depreciate this type of asset until it's actually in service.
Held-for-Sale
Finally, there's the often overlooked held-for-sale tracking on the fixed asset roll forward. To save you some Googling time, this covers details related to assets considered held-for-sale and, thus, tracked separately to facilitate potential disclosure. Just remember to halt all depreciation on any assets falling in this category.
Final Thoughts
A fixed asset roll forward isn't just beneficial for you and your financials, but your auditor as well, helping them tie everything together. Therefore, consider it one of those schedules you should look at monthly.
So, take our Fixed Asset Roll Forward Template and pearls of wisdom and make your fixed asset roll forward a dependable schedule that never leads your financials astray. And as always, Embark’s financial accounting and reporting gurus are here to provide guidance every step of the way, ready to help your company reach its potential.
