Fixed assets refer to tangible, long-term resources or property owned by a company, used to generate income and support business operations. Common examples include land, buildings, machinery, equipment, and vehicles. Unlike current assets such as cash or inventory, fixed assets aren't intended for resale and typically have a lifespan of more than a year.
Businesses purchase fixed assets with the intention of utilizing them over multiple accounting periods. Due to their long-term nature, they are recorded at their purchase price and depreciated annually, reflecting the assets' declining value over their useful life.
Proper management and accounting of fixed assets is crucial. It ensures accurate financial reporting, informs decisions on asset replacement or upgrades, and offers insights into operational efficiency. Tracking these assets over time helps businesses allocate resources effectively and plan for future investments.
Fixed assets are shown on the balance sheet under the category "property, plant, and equipment" (PP&E), typically presented at historical cost minus accumulated depreciation. Clearly maintaining records of fixed assets allows stakeholders and investors to gauge a company's sustainability, potential profit generation, and overall financial health. Understanding fixed assets is thus essential for businesses seeking long-term growth and stability.
