Fixed assets are assets that you intend to own or use for a long time, such as buildings, cars, and heavy machinery.
Fixed assets are assets you intend to own for a long time, they’re integral to the company’s day-to-day operations, and aimed at generating long-term profit.
The opposite of fixed assets is current assets. Current assets are short-term resources that serve your immediate business needs, such as inventory or cash.
What characterizes these assets
Among other things, these assets are:
- Meant to have a long useful life; you plan to own and use them for more than a year
- Vital for your day-to-day operations. They can also be called operating assets, although not all operating assets are fixed. Some operating assets are current assets, meaning that they’re short-term assets, for example cash.
- Depreciated over time. With the exception of plots of land, these assets are depreciated in your accounting. This means their value slowly decreases over time.
- Not liquid: Unlike liquid assets, these assets are not easy to quickly convert into cash.
Examples of fixed assets
Common fixed assets include buildings, machinery, vehicles, computer equipment, and real estate. Most companies have some of these assets, although which kind of assets you have depends on the type of business you run.
For example, a construction company will usually own a lot of fixed assets. The same goes if you run a rental business, where you rent out buildings, machinery or vehicles. On the other hand, if you work as a consultant, then you might only have one fixed asset: your laptop.
Fixed assets on financial statements
These assets are included in the financial statements that you have to submit as part of your annual report.
In your balance sheet, fixed assets are recorded as property, plant and equipment (PP&E), and gives an insight into what your business owns.
In your income statement, you include depreciation of your fixed assets, which is a type of fixed cost that impacts your net income.
In your cash flow statement the purchase and sale of fixed assets is included under the heading investing activities.