To make capital budget decisions, it is necessary to aggregate and review past expenditures. Similarly, the maintenance expense on different physical items will be important in projecting what future capital expenditures must be budgeted for. In most organizations, the capital budget will not identify additional items for classifications. The capital budgeting process is typically done in a more aggregated fashion. However, an organization that does research may require a separate budget report identification on research equipment. In other organizations, the department responsible for research is identified and the budget created by that organization. Some means must therefore be available to separately classify by organization as a budget category.
Items of physical property subjected to different inventory controls should also be identified with separate classes. Some property will require a specific physical inventory to establish its location and existence. Other items, such as furniture in large meeting rooms or cafeterias, may only be maintained in aggregate without annual verification requirements. In establishing the classification system, review the different inventory methods used and establish a classification for each method.
Property security and internal control procedures should be reviewed. Items of high value and portability may require not only greater inventory controls, but also security. Computers and other small electronic devices require greater control procedures. Businesses operating in remote areas such as construction, mining, and timber companies may require different security and control procedures for equipment left in those locations. Airlines and aircraft rental companies managing fleets of aircraft have special internal control, security, and inventory problems with component electronic devices in the aircraft. They are typically removed and replaced for maintenance, have easy portability, are high cost, and can be transferred to other uses and therefore should be separately controlled. These needs must be considered in establishing classification system design.
Having identified these characteristics within the classification systems allows transactions to be separately coded, stored in accounting databases, and retrieved at a later date. The purpose of classification has been to group, compare, and display the data. The result will be the creation of reports to assist in analysis and decision making.