Importance of Accurate Equipment Coding
Correctly coding equipment and property from the beginning is important because the codes affect so many activities in the life cycle of your equipment. If property codes are incorrect, you may have difficulties processing a new acquisition in FABweb, conducting the biennial inventory for your unit, or responding to auditors' questions.
An account code categorizes equipment by cost and type. If you do not enter an equipment account code when an item is purchased, there will be no skeletal record in FABweb and Banner Fixed Assets. In addition, equipment without a code will not be capitalized correctly. Capitalizing equipment is an important part of our total financial picture. You must submit a Journal Voucher form to correct an incorrect account code.
If your unit remodels, renovates, or performs maintenance that is over $100,000, the cost may be subject to capitalization. Consult Capitalized Construction Projects .
If your unit purchases or develops an intangible asset, the cost may be subject to capitalization. Consult with University Property Accounting for the correct account code. Definitions
Categorizes equipment for reporting purposes; used to assign a useful life to an item for depreciation. If an item's commodity code is incorrect, that item will not be classified or depreciated correctly.
Identifies the campus, building, and room where a piece of equipment can be found. If even the room information is missing or incorrect it will adversely affect the Facilities and Administrative (F & A) rate, the overhead we charge to all grants for using our facilities. In addition, your biennial inventory will be more difficult to complete because you will not know where to look for the item.
Indicates the use status of a fixed asset, such as whether it is being used by the unit, or is on loan to an employee. If an item's condition code is incorrect, it will adversely affect the Facilities and Administrative (F & A) rate, the overhead we charge to all grants for using our facilities.
Identifies the type of self-supporting activity, or "entity" for which a piece of equipment is currently used. If an entity code is incorrect, you will have to submit an Entity Code Change Request form to correct it.
Importance of Capitalizing
Capitalization means to classify the cost of an item as a long-term investment because that item will be used over a period of time. Therefore, that item's cost is not charged against the earnings of one fiscal year as part of the cost of day-to-day operations. Instead, it is charged over several fiscal years. Because the item is worth less in each succeeding fiscal year, the amount that is charged each year is depreciated. Depreciation reflects the reduction in the value of the item due to obsolescence and wear and tear. University Property Accounting and Reporting calculates capitalization and depreciation for you each year, so you do not have to perform that function. Accurate capitalization and depreciation are important because they are part of maintaining accurate records about University equipment and property.
The University maintains accurate property records because:
- It's University policy and state law (Illinois Property Control Act).
- It's required under the Government Accounting Standards Board (GASB) and Financial Accounting Standards Board (FASB).
- Equipment records are part of the University overhead which is used in calculating the Facilities and Administrative (F & A) rate, the indirect cost we charge sponsored projects. If our calculation is wrong, it could cost the University money.
- Property records are part of University financial statements which affect our ability to raise money because the statements are used to calculate our credit score which in turn affects our bond rating.
By following consistent accounting principles from GASB and FASB, it is possible to perform financial analysis comparing one unit to another and our University to other universities. It helps us determine our general financial health.
The codes outlined above form the basis for all this.
Related Policies and Procedures
Last Updated: June 1, 2011 | Approved: Senior Associate Vice President for Business and Finance - June 2011