Fixed Assets

Definition

Fixed assets are long-term tangible assets that are used in the production or supply of goods and services. They are also known as capital assets, and they are not expected to be consumed or converted into cash within a year. Examples of fixed assets include land, buildings, machinery, equipment, vehicles, and furniture.

Example

For example, a company that manufactures cars would have a factory building, machinery, and equipment as fixed assets. The company would also have vehicles used for transporting the cars to customers as a fixed asset. The furniture in the office would also be considered a fixed asset.

Why it Matters

Fixed assets are important for businesses because they are used to generate revenue. They are also important for accounting purposes because they are used to calculate the net worth of a company. Fixed assets are also used to calculate depreciation, which is an important factor in determining the company's taxable income.

Fixed assets are also important for budgeting purposes. Companies need to plan for the purchase of new fixed assets and the maintenance of existing ones. This helps the company plan for future expenses and ensure that they have the necessary funds to purchase and maintain their fixed assets.

Finally, fixed assets are important for financial reporting. Companies need to report the value of their fixed assets on their balance sheet. This helps investors and creditors understand the financial health of the company and make informed decisions about investing in or lending to the company.