Don’t Let Ghost Assets Haunt Your Books This Halloween Season

Ever wonder what happened to that laptop you know you saw around the office last year?  Or a desk you’re certain was put into storage?  They’re listed on your fixed asset ledger but are nowhere to be found. Perhaps you feel like you’re going a little crazy because it seems these items have mysteriously disappeared. You’re not alone. These so-called “ghost assets”  can haunt small business accounting for years. In fact, ghost assets have a very scary impact on your bottom line.

If you don’t know what a ghost asset is, you’re not alone. In fact, 49 percent of small business owners or managers admit they had no idea what a ghost asset was, according to the Wasp Barcode Small Business Accounting Report. Further, 25 percent said they didn’t know how ghost assets impacted their financials.

In many cases, fixed assets are the largest and most important investments a company makes.  A lot of cash is spent on company cars and the latest, fastest technology. So, these items should be carefully tracked, right? Wrong. An astounding 12 to 25 percent of assets in a fixed asset ledger don’t exist. These items are on paper, but are not physically “there.”

What is a Ghost Asset?

A “ghost” asset is a fixed asset on a general ledger that cannot be accounted for because it is not physically present or has been rendered unusable. This may not sound like a big deal, but it really is for companies of all sizes, because when they are haunted by ghost assets, they still pay taxes on those assets – something no company wants to do.

Impacts of Ghost Assets

The same Gartner study found that the average company will have anywhere from 15-30 percent of ghost assets in their inventory. When you take into consideration the value of fixed assets used by utility, oil and gas, transportation, and manufacturing companies, ghost assets can represent a significant chunk of the balance sheet. So, when they are not accounted for properly on the balance sheet, it can have negative ramifications across the business, especially when it comes to income and property taxes. A company can overpay on income and property taxes for assets that aren’t actually owned anymore.

In addition to overpaying taxes, ghost assets can financially impact the business through decreased productivity. An asset that only exists on paper or in the wrong location, and is not available for use or cannot be maintained properly will lead to additional expense from downtime and potentially have to be purchased again.

Are Your records constantly misfiled? Are you constantly missing records & paperwork?

How Do You Remove Ghost Assets

Yes, the removal of ghost assets could be easier said than done. Don’t be overwhelmed. Take a deep breath and dig in! An appraisal process is a valuable way to remove ghost assets, which is best done with an automated asset management system. Below are steps to get you started:

  • Perform a physical audit: You must verify that your ledger matches what you physically have on hand.
  • Pinpoint ghost assets: If a proper audit is done, ghost assets should be easy to identify.
  • Calculate the fair market value of audited assets. It’s important to know what your assets are worth, in order to depreciate them correctly on both your ledger and future tax forms.
  • Count your benefits: You’ll appreciate reduced property taxes, increased insurance coverage, and you’ll be in compliance in case of an asset audit. The IRS is not keen on inaccurate asset reports, which could mean heavy penalties for you if your records aren’t correct.

How to Ward Off Ghost Assets

These four steps can help companies better manage their ghost assets:

Create a process that specifically tackles ghost assets. Companies should start with a physical inventory of all large fixed assets to determine what is gone, and then implement a tracking solution through automated processes. Regularly educating the field is a key component in this process.

There are solutions that can help manage ghost assets and remove the manual process, which is prone to error and tracking problems. The reliance on outdated systems or spreadsheets could be one reason why the problem started.

Companies should track fixed assets from purchase to retirement on the accounting side of the organization.

In addition, fixed asset financial systems can automatically run depreciation studies to forecast asset lives and remove assets once they have reached the end of life stage. These systems can also integrate with other financial systems to reduce errors across the organization.

When tracking tax liability, automated solutions that can act as a data gathering and preparation system will minimize errors, optimize tax strategies, reduce audit risk and help maintain compliance.

Avoid Ghost Assets Moving Forward

Once you’ve taken the aforementioned steps, keep it up! Avoid accumulating ghost assets. If you’re a start-up business, you’ll be a step ahead of your competition if you track your fixed assets on a regular basis.

In today’s marketplace, your business needs asset tracking software. When you continue manual processes, your data will be prone to error, which is a waste of time and money.  A comprehensive automated asset management program enables your employees to track the location of any fixed asset, virtually eliminating asset loss due to either human error or theft. In turn, your business will reap the rewards of extending the lifecycle of your investments.

Limitless Investment and Capital’s Small Business Accounting Services in Gilbert and Scottsdale 

In order to stay focused on building your business, companies need solid financial management with a dependable accounting function. Limitless Investment & Capital combines a team of experts, systematized processes and procedures, and the latest in accounting technology to ensure our clients receive the best service to support their unique business needs at an affordable rate. We don’t just handle your business accounting needs, we get it done right!