The computing world is ever-changing and so is its lifecycle. While new software and hardware are constantly being made available to us, the way we use these things is also undergoing a steady change. The introduction of new technologies is slowly replacing the old in terms of the way we use them. That said, it can be difficult to keep track of the various changes and their implications for a business. This is especially if you’re only just beginning your accounting and fixed assets management journey. This article is here to help with that. It follows the lifecycle of a computer and its fixed assets from its creation to disposal. This will give you a better understanding of what your accounting needs to consider and how you can best ensure your business is following the rules.
What is the Computer Lifecycle?
The computer lifecycle is the various stages a computer goes through from its creation to its disposal. The lifecycle of a computer can be broken down into four stages: – Warranty Period – Product Life Cycle – End User Lifecycle – Disposal
From Purchasing to Disposal
The lifecycle of a computer starts from the moment it is purchased. The first stage is when you purchase your new computer and have it delivered to you. This is when your business has to consider whether it needs to account for the purchase as a fixed asset or not. Fixed assets are tangible, long-term investments that have a useful life of more than one year and their value cannot be used up in one accounting period. If you’re using a computer for less than a year, then this would be considered something you’ve purchased but not an asset. The second stage is when your company has decided to account for the purchase as a fixed power and starts depreciating it with this in mind. This means that each year, they can deduct some amount off its original cost (known as its depreciable base) until its total value reaches zero. Different depreciation rates are set by law – these vary depending on what type of equipment or software it is and how old it is. The third stage is when the hardware or software becomes obsolete or outdated, making it no longer useful or valuable. At this stage, your company may end up selling this computer through channels like eBay, Amazon Marketplace, Craigslist, etc., which will result in either a gain or loss on the company’s balance sheet as well as records being created in their accounts payable system for these sales transactions. Finally, at the fourth stage of its lifecycle comes disposal where all computers must go
The Hardware Lifecycle
The hardware lifecycle begins with the manufacture of a computer. This is where a manufacturer like Dell or Apple will create the various components and assemble them into one device. These computers can be desktops, laptops, tablets, or even smartphones. The components are then tested to ensure they function as expected and meet certain standards for quality. At this point, the computer is considered to be in its prime condition. The next stage of the hardware lifecycle relates to when these computers are being used by businesses for either office work or for general home use. Computers can be connected to external storage devices, printers, and monitors in order to increase their capability. As time progresses, however, these connections will wear out and become less reliable as they age; eventually rendering them useless. At this point in the lifecycle of a fixed asset it may also require more maintenance than it did when it was new; this includes things like software updates and repairs that can’t wait until the next scheduled maintenance cycle (every 3-5 years). The computer may start to slow down significantly because all these different demands have been put on it over time. It may also have been dropped or otherwise damaged at some point in its life which means there are now issues with key components such as the motherboard and hard drive; meaning that when something goes wrong with either of these then everything else could go wrong too. Laptops and other mobile devices will also reach a similar stage; where their battery
Software Asset Management
One of the most important things to keep in mind as an accountant, is Software Asset Management. As a business owner, one of your primary concerns will be ensuring you own the rights to use any software and that you have enough licences for it. Software is expensive and licenses are not transferable which means that if you upgrade, you’ll need to purchase new licences or downgrade the software. You’ll also need to make sure your staff are aware of how to access the software and only use it for work purposes.
The Network and Data Communication Lifecycle
The lifecycle of a computer begins with its creation and ends with the disposal process. The various stages in-between include: – Design – Planning and Development – Installation and Configuration – Commissioning and Acceptance Testing – Delivery – Operation – Maintenance and Support – Disposal
Accounting and Reporting for Asset Disposal
A common question that arises when you’re disposing of assets is how to account for asset disposal costs. If you dispose of your assets, then it’s best to use the Fixed Asset Record Format as a guide. This includes fixed asset details, disposal costs, and depreciation (if applicable). The Disposal Cost Account Code is where you should input the cost of the disposal. Note that if there are other fixed assets in this account code, then you should put these in the appropriate accounts before disposing of them. For example, you might have a separate line for inventory and property for sale. Once completed, you should prepare a Balance Sheet Report. Make sure to include all disposed or sold fixed assets from this report and their respective disposal costs. You should also note any drawdown accounts that were used to finance these disposals or sales. This will help ensure your accounting is accurate and up-to-date.
The Final Word
In the accounting world, the lifecycle of a computer is important to account for. This article discussed the various stages and what they entail. It will also give you an idea of what your accounting needs are to consider in order to best manage your fixed assets.