With which cycle does the fixed asset system share some characteristics?

With which cycle does the fixed asset system share some characteristics?

• A. Conversion cycle
• B. Revenue cycle
• C. Development cycle
• D. Expenditure cycle

Answer: (D)

Capital asset management is closely tied to how a company spends money on long-term resources. The process starts with the acquisition of a capital asset, which follows the same flow as the expenditure cycle: requisition or approval, purchasing, receiving, supplier invoicing, and payment. Once the asset is received, the fixed asset subsystem records its cost, assigns an asset tag, and sets the useful life and depreciation method, so depreciation expense is recognized over time. When the asset is disposed of or retired, the transaction updates depreciation, removes the asset from the books, and records any gains, losses, or impairment, often involving final settlements with vendors or adjustments in the accounts payable and general ledger. Because the acquisition, capitalization, depreciation, and eventual disposal of fixed assets hinge on expenditures and related financial controls, the fixed asset system shares these characteristics with the expenditure cycle. The other cycles focus on transforming inputs to outputs, generating revenue, or development activities, which do not align as directly with how fixed assets are acquired and managed.

Capital asset management is closely tied to how a company spends money on long-term resources. The process starts with the acquisition of a capital asset, which follows the same flow as the expenditure cycle: requisition or approval, purchasing, receiving, supplier invoicing, and payment. Once the asset is received, the fixed asset subsystem records its cost, assigns an asset tag, and sets the useful life and depreciation method, so depreciation expense is recognized over time. When the asset is disposed of or retired, the transaction updates depreciation, removes the asset from the books, and records any gains, losses, or impairment, often involving final settlements with vendors or adjustments in the accounts payable and general ledger. Because the acquisition, capitalization, depreciation, and eventual disposal of fixed assets hinge on expenditures and related financial controls, the fixed asset system shares these characteristics with the expenditure cycle. The other cycles focus on transforming inputs to outputs, generating revenue, or development activities, which do not align as directly with how fixed assets are acquired and managed.