What are fixed assets? Definition and meaning
Fixed assets, also called fixed capital, are tangible assets that cannot be easily converted into cash. Examples include property, plant and equipment (PP&E). Fixed assets are not resold as part of a company’s everyday business operations.
Fixed assets are tangible pieces of property that a company uses in the production of its income or administrative purposes.
In manufacturing businesses, they are sometimes collectively referred to as ‘plant’. Tangible assets are those we can touch.
Fixed assets contrast with current assets (liquid assets), which are things a business owns that can be converted into cash within twelve months.
A fixed asset does not necessarily have to be ‘fixed’ in the sense of being impossible to move. Computers and vehicles, for example, are fixed assets and can be moved, even entirely off the premises.
Fixed assets are the things a business owns that help it produce and earn money; they are not resold as part of everyday business activities.
Most tangible assets are fixed assets.
In the vast majority of cases, only tangible assets are classed as fixed. Some long-term intangible assets, such as patents and trademarks, are generally categorized as ‘fixed intangible assets’ (rather than fixed assets).
Accountants define a fixed asset as an item whose useful life is longer than one reporting period, and which exceeds a company’s minimum capitalization limit.
Inventory items are not classed as fixed assets, because they are bought with the intent of either being resold or incorporated into a product that is sold.
The following are classed as fixed assets:
- – vehicles,
- – buildings,
- – furniture and fixtures,
- – leasehold improvements,
- – machinery,
- – land,
- – computer equipment, and
- – computer software.
According to accountingtools.com, fixed assets are first recorded as assets, and are then subject to the following general kinds of accounting transactions:
- – periodic depreciation (tangible assets), or amortization (intangible assets,
- – impairment write-downs (if the asset’s value falls below its net book value),
- – disposition (as soon as assets are disposed of).