Correctly understanding accounting for fixed assets can significantly affect a company’s financial health—especially in the retail industry, where accurate fixed asset reporting supports financial transparency, compliance, and asset tracking for long-term planning.
In this article, we’ll cover how to properly define and track fixed assets for accounting purposes and explore what you can do to manage your assets more efficiently.
What Are Fixed Assets?
Fixed assets are typically tangible (physical assets) with substantial value meant for long-term use. They are purchased with the expectation that they will generate income for a retail business over time (during their useful life)—usually for more than one year. Fixed assets are classified as noncurrent or capital assets and are recorded as such on a company’s balance sheet.
Fixed assets should not be confused with current assets, as they are not expected to be converted into cash within a 12-month period. For example, inventory—considered a current asset—is intended to be sold in the normal course of business. In contrast, fixed assets are used to make money and are items used to make, store, receive, or transport the products a retail business sells, for example.
Types of Fixed Assets
There are several types of fixed asset accounting, including intangible assets like software that a company owns or intellectual property. A retail company’s fixed assets usually consist of buildings and facilities (excluding land), computer equipment, furniture, fixtures, machinery, and vehicles such as delivery trucks. Leased assets can also be classified as fixed assets—for example, if your retail business has a lease for retail space that includes terms longer than 12 months.
What is Fixed Asset Accounting?
Fixed asset accounting is the process of tracking and recording all the financial activity related to long-term fixed assets—such as equipment, fixtures, or retail counters—to ensure accurate financial reporting.
This includes determining an asset’s acquisition cost based on the asset’s fair market value, calculating periodic asset depreciation (audits), and using revaluation to reassess an asset’s current fair market value.
The next steps in accurate fixed asset accounting would be to assess an asset’s impairment (also known as writing down, which is a recorded reduction in value due to events and circumstances) and, finally, record a fixed asset’s eventual disposal.
Each fixed asset’s accounting record reflects a stage in its lifecycle—from acquisition of the fixed asset to generate revenue to depreciation, then disposal—making it an essential part of the fixed asset lifecycle accounting process.
The Lifecycle of Fixed Assets
In the retail industry, fixed assets are essential to daily operations and customer experience, whether it’s retail shelving units, barcode scanners, checkout counters, or delivery vehicles. These high-value assets follow a predictable accounting cycle: acquisition, use, depreciation, maintenance, and eventual disposal.
Understanding this lifecycle helps retailers make smarter purchasing decisions, stay tax-compliant, track operational costs, and optimize asset usage across locations. In the sections that follow, we’ll walk through the key stages of the fixed asset lifecycle and how proper accounting practices—including depreciation methods and disposal procedures—can support financial health and long-term growth in your retail business.
Fixed Asset Depreciation and Maintenance
From the moment a fixed asset is used, its value begins to depreciate—a process that reflects wear and tear over time. In addition to depreciation, assets may require periodic repairs to remain functional. While minor repairs are typically expensed on the income statement, major replacements or upgrades that extend an asset’s useful life are usually capitalized.
Methods of Depreciation
Four primary methods are used to calculate depreciation: double-declining balance, straight-line, sum-of-the-years’ digits (SYD), and units of production.
Choosing the right method can significantly influence how depreciation is recognized on your financial statements, affecting budgeting forecasts for the fiscal year.
Additionally, picking an accurate depreciation method serves as an important cost-saving function because each depreciation method and its implications directly impact what tax deductions you can claim while also ensuring the accuracy of your quarterly reports.
Here are some examples of methods of depreciation and their application in the retail industry:
- Double-declining balance: An accelerated method that records higher depreciation expenses in the early years and lower depreciation expenses later.
Retail example: It is useful for tech-heavy point-of-sale systems or digital signage that quickly become outdated and lose value after the first few years.
- Straight-line: Applies the same depreciation amount evenly across each year of the asset’s useful life.
Retail example: Ideal for long-lasting assets like shelving units or display furniture that wear out slowly and predictably.
- Sum-of-the-years’-digits (SYD): Another accelerated depreciation method that front-loads depreciation, allowing you to write off more in the earlier years of a fixed asset’s useful life and less in the latter years by calculating the number of years.
Retail example: This method is a good fit for assets like branded kiosks or seasonal installations that draw more value early on but diminish in impact over time.
- Units of production: Depreciation varies based on the asset’s actual usage or output, aligning expense recognition with productivity.
Retail example: This depreciation method is best suited for machinery in a backroom production space, like a label printer or embroidery machine, where wear and tear depend on usage volume.
Accounting for Depreciation on Financial Statements
Once you’ve selected a depreciation method, the financial impact appears in your accounting records. The initial cost of a fixed asset—based on its fair market value at the time of acquisition—is recorded under property, plant, and equipment (PP&E) on the balance sheet.
As depreciation accumulates over time, a fixed asset journal entry adjusts the asset’s book value while the corresponding depreciation expense appears on the income statement. Additionally, purchases and disposals of fixed assets are captured in the cash flow statement, ensuring a full picture of asset-related cash movements.
Fixed Asset Disposal
If a fixed asset is damaged beyond repair:
- Remove it from the books by writing off its original cost and accumulated depreciation.
- Record a journal entry for the disposal.
- If cash or a trade-in is received, compare it to the asset’s book value:
- If higher, record a gain on disposal.
- If lower, record a loss on disposal.
- If demolished, record a loss on demolition.
Fixed Asset Turnover Ratio: How Efficient is Your Retail Business?
Efficient fixed asset accounting means calculating key financial metrics, such as the fixed asset turnover ratio, where a good asset turnover ratio shows how effectively your retail business generates sales from its fixed assets.
A higher fixed asset turnover ratio indicates that a retail business is efficiently using its fixed assets to generate sales. In comparison, a lower ratio may signal the need for operational improvement and optimization.
Turnover ratio formula:
Net annual sales ÷ (Gross fixed assets − Accumulated depreciation) = Fixed asset turnover ratio
Tracking this ratio over time helps retailers evaluate whether new investments are translating into tangible growth or whether it’s time to reassess how those assets are being utilized.
Non-Cash Disposals
Disposals aren’t always cash-based—some fixed assets may be donated, scrapped, or written off. If the fixed asset was insured, be sure to file a claim. Any purchased replacement asset should be capitalized separately and depreciated over its own useful life.
The Importance of Fixed Asset Accounting in Retail
In the retail industry, where margins can be tight and capital investments significant, accurate fixed asset accounting is essential to maintaining financial health and operational efficiency. By properly tracking the lifecycle of long-term assets—from shelving units and point-of-sale systems to delivery vehicles and display fixtures—retailers can ensure that fixed asset values are correctly reflected on their balance sheets.
Accurate depreciation, timely impairment testing, and consistent management of non-operating assets support more transparent financial reporting and better-informed decision-making. Moreover, a well-maintained accumulated depreciation account prevents accounting errors and provides valuable insight into when assets may need replacement or reassessment.
Effective fixed asset accounting also helps retailers avoid common pitfalls such as overstating asset values, underutilizing capital, or misaligned tax reporting. With robust tracking practices in place, your retail business is better equipped to manage its financial future, ensuring every asset contributes to productivity and profitability.
Want to make the process easier? Modern fixed asset accounting software can automate depreciation schedules, streamline asset tracking, and integrate with your existing systems for real-time accuracy. It’s a powerful way to take control of your asset data and make smarter financial decisions.
Best Practices for Fixed Asset Accounting in the Retail Industry
Proper fixed asset accounting is crucial for maintaining accurate financial reporting in retail, where large capital investments in long-term assets like equipment are common. To ensure clarity and consistency in your accounting practices, here are a few essential best practices:
Establish a Threshold for Capitalization
Setting a clear threshold for capitalization is critical to avoid misclassifying items that should be treated as non-operating assets or expensed immediately. By determining a fixed value for an asset’s cost at the time of purchase, you ensure uniformity in your financial statements, facilitate accurate tracking of net fixed assets, and prevent errors in the accumulated depreciation account.
Re-evaluate Equipment Life Regularly
A fixed asset’s useful life is an essential factor in its depreciation cycle. Regularly re-evaluating how long your assets can continue to perform their intended function ensures that a fixed asset’s depreciation reflects reality. This process helps update both the carrying value and net value of assets, allowing for adjustments to the periodic depreciation expense accounts so that your financial reports match actual asset usage.
Tag Your Assets
Tracking and tagging assets throughout their lifecycle is critical for retail businesses, where items like POS systems or shelving can easily be misplaced or stolen. Proper asset tagging not only helps maintain physical control but also ensures that assets are accurately recorded on the balance sheet. This makes it easier to monitor each asset’s carrying value (also known as book value), salvage value, and their contribution to the company’s total net fixed assets.
Net fixed asset formula:
Net fixed assets = Total fixed assets – Accumulated depreciation
Net fixed assets represent the current book value of all fixed assets that a company owns after accounting for depreciation. Accurate asset tagging helps ensure each individual asset is properly accounted for and valued—so the total net fixed assets figure reported in your financial statements is reliable.
Utilize Fixed Asset Accounting Software
Automating your fixed asset accounting cycle through specialized software enhances efficiency by streamlining asset tracking, depreciation calculations, and maintenance schedules. Software solutions help keep your cash account and accounts payable account accurate while providing essential insights into asset performance and assisting with impairment testing. Additionally, password protection ensures that only authorized personnel can access sensitive data, enhancing security.
Common Challenges in Fixed Asset Accounting
Despite the best practices, retail businesses face a variety of challenges when managing their fixed assets. Some common hurdles include:
Inconsistent Asset Valuation
Determining the actual value of assets can be difficult, particularly when market conditions change or when multiple assets are bundled together. Retailers may struggle to maintain the accuracy of their net fixed assets if these values are not regularly updated. Furthermore, assets like leases or outdated technology may need to be revalued, affecting both carrying value and net value on the balance sheet.
Tracking Depreciation Across Multiple Locations
In retail, especially with larger chains, tracking a fixed asset’s depreciation across multiple stores or warehouses can lead to discrepancies. Without a centralized system to track fixed assets, it’s difficult to ensure that depreciation is applied correctly and consistently across the organization’s financial statements.
Impairment Testing
Impairment testing is crucial for retail businesses dealing with equipment that may no longer serve its intended function or has fallen below its salvage value. Determining whether an asset’s carrying value exceeds its recoverable amount is necessary to prevent overstating net assets. Failing to conduct regular impairment tests can result in overestimating the value of obsolete or underperforming assets, affecting accurate financial reporting.
Complex Disposals
Disposing of fixed assets can also present challenges, especially if the asset was fully depreciated or if non-operating assets were sold or written off incorrectly. Retailers must ensure that asset disposals are handled properly, updating both the cash equivalents and accounts payable accounts while reflecting the accurate impact on the organization’s balance sheet.
How Brightpearl Can Help with Fixed Asset Accounting
Tracking and managing your retail assets doesn’t have to be complex. With the right retail operations platform—like Brightpearl—you can simplify aspects of the fixed asset accounting process and ensure your key financial data stays accurate and up-to-date.
While Brightpearl is not a dedicated fixed asset accounting solution, it offers integrated accounting tools that help retail businesses monitor the purchase and value of long-term assets, from acquisition to disposal. You can manage key cost elements like the asset’s purchase price and carrying value, supporting more accurate entries on your organization’s balance sheet.
Brightpearl also allows you to automate depreciation calculations, helping you reflect periodic depreciation expenses in your financial reports. This ensures that your net fixed assets are updated regularly and reduces the manual workload for your finance team.
Its built-in accounting features integrate with accounts payable and real-time reporting, so you can manage operational costs and gain visibility into your overall financial health—all within one platform.
If your retail business needs a centralized system to help streamline purchasing, monitor asset performance, and maintain cleaner financial records, Brightpearl offers the operational backbone to support your asset tracking and lifecycle reporting needs.
Book a demo with Brightpearl today to see how our solution can help you manage your assets more efficiently and ensure accurate financial reporting!
