What are Fixed Assets

Fixed assets are items of personal (moveable) property with an estimated useful life of more than one year. Examples of fixed assets include furniture, fixtures, equipment, computers, vehicles, and similar items of personal property. A fixed asset does not lose its identity through incorporation into a different or more complex device.

In contrast to “inventory” items, a fixed asset retains its original shape or appearance with use, and is not consumed in operation. A fixed asset is considered non-expendable. If it is damaged, or parts are lost or worn out, it is more feasible to repair the item rather than replace it with an entirely new unit.

A fixed asset represents a significant investment of money, which makes it advisable to capitalize the item. Capitalization is the process of accounting for assets and charging associated expenditures to a capital outlay budget. In essence, to “capitalize” means to delay the recognition of expenses by recording the expense as a long term asset.

Following the financial accrual principal, these assets are reported on the year-end balance sheet. Their value is depreciated and treated as an expense in the Profit and Loss statement. Accordingly, fixed assets must be accounted for through periodic physical inventory taking.

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