Glossary
Fixed assets
Fixed assets are tangible, long-term resources that a company owns and uses to support business operations and generate financial benefits over multiple years. Commonly known as property, plant, and equipment (PP&E), fixed assets appear in the noncurrent section of the balance sheet and are capitalized and depreciated over their useful lives.
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What is the definition of fixed assets?
The definition of fixed assets is tangible, long-term assets that a company owns and uses to produce goods or services and generate revenue. Fixed assets are expected to be held for more than one year, are typically depreciated over their useful lives — except for land — and appear on the balance sheet as property, plant, and equipment (PP&E).
When a business acquires a fixed asset, the item is capitalized and depreciated over time to reflect wear, usage, and a decline in economic value. Many businesses also lease fixed assets; under ASC 842, most leases over 12 months must be recorded on the balance sheet as right-of-use assets and lease liabilities.
What are fixed assets in accounting?
In accounting, fixed assets are noncurrent, long-term resources used to support operations and generate income. They include physical assets such as buildings, machinery, vehicles, and equipment. These assets are capitalized, depreciated, and eventually disposed of or replaced as part of their normal life cycle.
Fixed assets play a critical role in financial reporting by helping investors, creditors, and internal stakeholders evaluate operational capacity, financial health, and long-term investment stability.
Why are fixed assets important?
Fixed assets are essential for several reasons. They can:
- Help a company provide services and goods to customers and generate revenue
- Educate creditors and investors on the financial health of a company
- Indicate that a business may be in a high-growth mode
What are examples of fixed assets?
Here are 10 examples of fixed assets:
- Land
- Buildings
- Machinery
- Vehicles
- Furniture
- Office equipment
- Computer hardware
- Tools
- Software, capitalized under applicable accounting rules
- Leasehold improvements
Intellectual property, such as patents or trademarks, may also be treated as long-term assets, but they are classified separately as intangible assets rather than fixed assets. Classification often depends on the nature of the business. For example, a tractor is inventory for a dealer but a fixed asset for a commercial farming operation.
What are the criteria for capitalization of fixed assets?
A fixed asset is capitalized when:
- It is owned or controlled by the business
- It has a useful life longer than one year
- It is used in operations to generate revenue
- Its cost exceeds the company’s capitalization threshold
- It provides a measurable future economic benefit
Capitalized costs may include purchase price, taxes, installation, shipping, and any improvements that extend the asset’s useful life or enhance its productivity.
Is inventory a fixed asset?
No. Inventory is a current asset because it is intended to be sold, consumed, or converted to cash within one year. By contrast, fixed assets are long-term resources used to operate the business rather than sold to customers.
Are intangible assets fixed assets?
No. Intangible assets such as trademarks, patents, copyrights, and goodwill are long-term assets but are not classified as fixed assets. Instead, they fall into their own category of noncurrent intangible assets.
How do you calculate fixed assets?
You calculate fixed assets by determining their net fixed assets, which measure the current book value after depreciation. Net fixed assets equal the total recorded cost of fixed assets minus accumulated depreciation.
Formula: gross fixed assets – accumulated depreciation = net fixed assets
See “How do I calculate gross fixed assets?”
If liabilities like financing obligations are attached to the asset, some companies calculate net fixed assets after subtracting related debt.
What are net fixed assets?
Net fixed assets represent the current book value of a company’s fixed assets after subtracting accumulated depreciation. This value reflects the remaining economic benefit of assets currently in use. Net fixed assets are used to assess capital investment, operational efficiency, and long-term asset strength.
How do I calculate gross fixed assets?
Gross fixed assets represent the total historical cost of all fixed assets before depreciation, including purchase price, taxes, installation, upgrades, and improvements.
Formula: gross fixed assets = total original cost of all fixed assets + capitalized improvements
How do I calculate depreciation on fixed assets?
To calculate depreciation on fixed assets, you allocate the asset’s cost over its useful life using a recognized method such as straight-line, declining balance, units of production, or sum-of-the-years’ digits. Depreciation depends on an asset’s cost, useful life, salvage value, and selected calculation method.
For more details, read our blog post, Tax depreciation 101.
What is the difference between fixed assets and current assets?
The differences between fixed assets and current assets are as follows:
- Fixed assets are a type of noncurrent asset that are depreciable and illiquid. When a fixed asset is sold, it results in a capital profit or loss for the company. It is expected that a business will keep and use fixed assets for at least one year — often referred to as its “useful life.”
- Current assets are liquid and include items such as inventory, cash, and cash equivalents. When a current asset is sold, it results in revenue, a profit, or a loss for the company. Current assets are not depreciable and are of a short-term nature, meaning they are less than one year.
What is the life cycle of fixed assets?
The fixed-asset life cycle is a series of four stages that start with the client acquiring an asset and end when they dispose of it:
- Acquisition. This is the first stage of the life cycle. Purchasing a fixed asset, like new machinery, is a common way to obtain a fixed asset. However, some clients may use internal workers to build their assets. In this case, consider how much of the workers’ salary to include in the asset's cost.
- Depreciation. During the second stage, the value of fixed assets — like machinery and office equipment — declines as they are used and age, except for land. This means fixed assets can be depreciated. An asset’s useful life, the salvage value, and depreciation method — that is, straight line, declining balance, units of production, or sum-of-the-years’ digits — are factors to consider when calculating depreciation.
- Maintenance and repairs. After some time of use, most fixed assets will need repairs and maintenance. Consider whether to capitalize or expense the work, especially if it is extensive and boosts the asset’s value.
- Disposal. This is the final stage. In this stage, fixed assets are often converted into cash. There are, however, several ways a client can dispose of a fixed asset. They could sell, donate, or replace it with a similar, newer asset.
What is fixed asset accounting?
Fixed asset accounting is the process of recording the asset’s purchase cost, periodically depreciating it over the asset’s useful life as it declines in value, and eventually disposing of the asset and removing it from the books.
What is a fixed asset register?
A fixed asset register is a detailed, centralized record of all fixed assets owned or leased by a business. It tracks essential information, including asset descriptions, acquisition dates, purchase costs, depreciation, location, useful life, and disposal details. It supports financial reporting, tax compliance, and audit accuracy.
What is a fixed assets schedule?
A fixed assets schedule is a supporting document that breaks down each fixed asset category, its cost, accumulated depreciation, and net book value. It is often used in audits, tax filings, year-end reporting, and management reviews to ensure accuracy and completeness of PP&E records.
What is a fixed asset turnover ratio?
A fixed asset turnover ratio is an efficiency ratio that measures how effectively a company generates sales from its fixed assets. It is most useful for companies that require a large capital investment to conduct business, such as manufacturers.
How do you calculate the asset turnover ratio?
You determine the fixed assets turnover ratio with the following formula:
Net annual sales ÷ (gross fixed assets − accumulated depreciation) = fixed asset turnover ratio
What is a good asset turnover ratio?
A ratio greater than one indicates a company is selling its fixed assets at a good rate. On average, most businesses have a turnover rate between five and 10. A higher turnover rate indicates greater success in managing fixed asset investments. However, there is no specific ratio or range that defines a good asset turnover ratio. Instead, companies’ turnover ratios are very industry specific, and other factors must be considered. For example, if a company’s competitors have ratios of 2.25, 2.5, and 3, its 3.75 ratio is high compared to theirs.
In addition, other factors can influence results:
- Heed caution if a company uses accelerated depreciation. It could result in the turnover ratio being higher than it should be.
- Compare a client’s current ratio with previous periods, industry standards, or comparable businesses. This method will help better determine if they are efficient at generating revenue on such assets.
- Avoid including intangible assets in the denominator, which can distort the results.
This information was last updated on 02/25/2026.
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