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66 CHAPTER 3 Introduction to Accounting

Companies use asset accounting to track the fi nancial consequences asso-
ciated with the entire lifecycle of an asset, from acquisition to disposal. In this
section we discuss asset accounting as it relates to tangible assets, which can
be further categorized as fi xed assets, leased assets, and assets under construc-
tion. A discussion of how the other types of assets are accounted for is beyond
the scope of this book.
Asset accounting is complex, and a thorough discussion is beyond the
scope of this book. However, we discuss some key concepts next. Assets are
assigned to a company code and, by virtue of this assignment, all asset-related
transactions are posted to the general ledger associated with the company
code. This arrangement ensures that asset transactions are properly refl ected
in the company’s fi nancial statements. Recall from our previous discussion
that fi nancial statements can be created for business areas as well as company
codes. Therefore, assets are also assigned to a business area. Finally, assets are
associated with cost centers. We explained earlier that companies employ cost
centers to accumulate the costs incurred in various processes. In asset account-
ing, the primary cost is depreciation expense, which is the loss in value of an
asset over time. When a company incurs a depreciation expense, it must allo-
cate that expense to a cost center.
Accounting data about each asset are maintained in asset subledger
accounts. These data include acquisition costs and depreciation. Like
other subledger accounts (such as customer and vendor accounts), asset
subledger accounts are created when the asset master record is created. The
subledger account and the master record share the same account number. As
in the case of customer and vendor accounts, asset accounts are associated
with a reconciliation account in the general ledger. However, in contrast with
customer and vendor accounts, the association between an asset account and
a reconciliation account is not straightforward. Rather, it depends on which
asset class the asset belongs to. An asset class is a grouping of assets that
possess similar characteristics. For example, all computing equipment such as
computers, printers, and monitors can be included in one asset class. Each asset
class is associated with a specifi c reconciliation account in the general ledger
account. The fi ve reconciliation accounts related to assets that are included in
GBI’s general ledger are listed in Figure 3-17. Finally, each asset class includes

Figure 3-17: GBI reconciliation accounts for assets

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