Additional Resources

  1. Fixed Assets [ssc.jhmi.edu]
  2. Fixed Assets [longwood.edu]
  3. Fixed Assets [ecu.edu]
  4. Safeguard Fixed Assets [wayne.edu]
  5. Capital/fixed Assets [skidmore.edu]
  6. Fixed Assets Policies [controller.vcu.edu]

Definition

Fixed assets, also known as tangible assets or property, plant, and equipment, is a term used in accounting for assets and property that cannot easily be converted into cash. This can be compared with current assets such as cash or bank accounts, which are described as liquid assets. In most cases, only tangible assets are referred to as fixed.

Fixed Assets

Fixed assets are collectively referred to as 'plant'. A fixed asset in simple terms is a long term tangible piece of property that a firm owns and uses in the production of its income. It is not expected to be consumed or converted into cash any sooner than one years time.

Breaking down Fixed Assets

Real estate, equipment, furniture and buildings are good examples of fixed assets. Fixed assets are at the primary stage recorded as assets and then subject to the following types of accounting transactions

  • Periodical depreciation - for tangible assets, amortization for intangible assets
  • Impairment write downs - If the value of an asset goes down below the net book value.
  • Disposition - Once the assets are disposed.

A fixed asset appears in the financial records at its net book value, which is its original cost minus accumulated depreciation and impairment charges. Due to on-going depreciation the net book value of an asset always declines.

A fixed asset does not actually have to be fixed. Many fixed assets are portable enough to be routinely shifted within a company's premises or entirely off the premises.

Depreciation of fixed assets

Fixed assets are a part of the balance sheet at their initial cost and then depreciated throughout their useful life until sold, replaced or recorded in the balance sheet at their residual value. The depreciation of a fixed asset is the initial cost minus the residual value. It is an expense since it diminishes the value of a company's total holdings.

Conclusion

Although fixed assets commonly come to mind when one thinks of assets, not all assets are fixed. Trademarks, good will and patents are all intangible assets. Regardless of the physical form, information about a company's assets are a key component of accurate financial reporting, thorough financial analysis and business valuation. Companies employ a variety of accepted methods for recording, disposing and depreciating of assets.

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