A State By State Accounting Guide
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What is Capital Accounting?

Financial management of a company’s capital assets is referred to as capital accounting. Capital assets, also referred to as ‘fixed’ assets, are long lasting pieces of property used to generate revenue for the company. These assets can either be tangible property such as buildings, machinery, and equipment or they may be intangible as is the case with intellectual property, patents and trademarks. Each company devises its own capital accounting policy, declaring which assets will be capitalized and how these capital assets will be managed. Generally Accepted Accounting Principles (GAAP) provide some guidance as to reporting requirements associated with an asset that may be capitalized, but the ultimate policy will be developed by each company individually.

Capitalization refers to the practice of recording a piece of property as an asset on a company’s balance sheet, versus treating the cost of the property as a deductible expense. For example, a company may elect to capitalize a piece of machinery and depreciate it over a number of years, writing off the depreciated amount as a tax deduction each year and continuing to count the remainder as company capital. Another company may choose not to capitalize that particular piece of machinery at all, never adding its worth to the value of the company. They may prefer to simply consider it a business expense and take the full tax deduction for it at the time of purchase.

Because of the complexity involved with the capital accounting process, many large corporations will often have a capital accounting department consisting of numerous accountants. Smaller companies without this luxury will frequently struggle with the capitalization process. They may use different depreciation methods for similar assets, capitalize an asset based on its replacement value or even fail to capitalize all of the initial costs incurred to acquire the asset. Companies that find themselves in this situation may choose to hire an accounting consultant to help them standardize their capital accounting process.

The Role of a Capital Accountant

Capital Accountants are most often employed by large corporations, although some work in consulting firms, mid-sized companies or even governmental entities. Those retained by large corporations are an integral part of the business, as they have tremendous impact on a company’s financial reporting.

Capital Accountants will have the following primary duties assigned to them:

  • Administration of capital asset program by performing periodic audits, tagging assets for tracking purposes and assigning proper acquisition values
  • Evaluating potential capital expenditures for practicality and profitability
  • Annual capital expenditure budget preparation
  • Consistent management of depreciation schedules

Depreciation Schedules

Depreciation is the process of reducing an asset’s value due to the wear and tear caused by normal use over a period of time. Since capitalizing an asset allows the value of that asset to be depreciated over a period of time, this can decrease a company’s future tax liability. However, capitalizing too many assets will decrease a company’s Return on Assets (ROA), which is a popular accounting ratio used in determining a company’s worth or they’re ability to repay a loan on a piece of property based on how much revenue it generates.

Capital Accountants have a thorough understanding of GAAP and how it applies to capital assets. In addition, they should have extensive knowledge of all depreciation methods and which ones are most applicable to their respective industry. There are numerous methods of depreciation, with some methods being custom developed to fit a particular industry or organization.

Education Required

For most capital accounting positions, a bachelor’s degree in accounting or finance is required. Because of the specialized nature of capital accounting, most of the relevant coursework will be mastered through courses in financial accounting.

As with any accounting or finance position, a professional can increase their career opportunities and educational development by attaining a post-graduate degree such as a Masters in Business Administration (MBA). An MBA can give a specialist a competitive advantage because it demonstrates a commitment to higher education and personal development. In addition, the Graduate Management Admissions Council (GMAC) reports that, on average, the entry-level salary of an MBA graduate is $11,000 more annually than that of other graduates.

Certifications and Associations

Certified Public Accountants have always proven to be well suited for careers in capital accounting. Passing the CPA Exam proves to employers that a candidate has working knowledge of information necessary for a career in capital accounting. To be eligible to take the Uniform CPA Exam, an applicant must have 150 college credit hours in relevant coursework including accounting, finance, business management and ethics. Upon passing the four-part CPA exam, state boards also require one-year minimum experience before issuing CPA licensure.

A CPA must take at least 120 hours of continuing education every three years to maintain an active license. Continuing professional education (CPE) ensures that CPAs remain abreast of changes to GAAP.

Certified Management Accountant

The Certified Management Accountant (CMA) designation is designed to reflect a professional’s advanced knowledge and skills regarding corporate accounting. The exam composition covers financial planning, control, decision-making and analysis applicable to supporting all industries. Obtaining licensure as a CMA demonstrates dedication to the profession, as well as a commitment to professional ethics. To be eligible for CMA certification, a candidate needs to meet the following criteria:

  • Be a member of the Institute of Management Accountants (IMA)
  • Pay an Entrance fee of $200 ($75 for Students)
  • Have a bachelor’s degree from an accredited college or university (no restriction on curriculum or degree concentration)
  • Have two years of continuous professional experience in management accounting or financial management
  • Successfully pass both four-hour parts of the CMA Examination
  • Remain compliant with the IMA Statement of Ethical Professional Practice standards

To maintain the designation, a CMA is required to attend 30 hours of continuing education annually, as well as keep membership current by paying annual fees. The IMA places a great deal of emphasis on ethical standards, and requires each CMA designee is required to complete two hours of ethics specific coursework each year.

Salary

Because of the specialized nature of capital accounting, most salary reports classify capital accountants as general corporate accountants. According to Robert Half Company, an entry-level position as a general accountant in a large corporation will offer approximately $42,000 in annual salary. General Accountants at the management level in a large company can expect to earn $84,500 annually.

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