What Are Fixed Assets?
Fixed assets are physical items that a business purchases and retains ownership of, as part of its ongoing operations. These assets can represent an organization’s long-term investments and usually come with a useful life expectancy of more than one year. Examples include machinery, equipment, land, buildings and automobiles. In this blog article, we will explore what fixed assets are, how they are accounted for in financial statements, their advantages and disadvantages and the tax implications associated with them. Read on to learn more about fixed assets and how they can benefit your business.
What are fixed assets?
Fixed assets are long-term physical assets that a company uses in its business, such as buildings, machinery, equipment, vehicles, and land. These assets are not intended for sale in the ordinary course of business but are instead held for use in the production or supply of goods or services. Because fixed assets typically have a long life span, they are also often called capital assets or property, plant, and equipment (PP&E).
Why are they important?
There are a few reasons why fixed assets are important:
1. They help businesses keep track of their property and equipment.
2. They help businesses manage their depreciation expense.
3. They help businesses measure their financial performance.
4. They provide security for loans and other financing arrangements.
How to account for them
When it comes to accounting for your company’s fixed assets, there are a few key things you need to keep in mind. First, you’ll need to track the cost of each asset. This includes the original purchase price, as well as any subsequent costs associated with maintaining or repairing the asset.
You’ll also need to depreciate each asset over its useful life. This is important for tax purposes, as it allows you to deduct a portion of the asset’s cost each year. The depreciation schedule will vary depending on the type of asset, so be sure to consult with your accountant or tax advisor to determine the proper schedule for your assets.
Finally, you’ll need to keep accurate records of all your company’s fixed assets. This includes keeping track of their location, as well as any insurance policies that cover them. By staying organized and keeping good records, you can ensure that your company’s fixed assets are properly accounted for.
Types of fixed assets
There are several types of fixed assets, which include land, buildings, machinery, equipment, vehicles, and furniture. Each type of asset has a different purpose and is used in a different way.
Land: Land is a type of fixed asset that can be used for agricultural or commercial purposes. It can be bought and sold, and its value can appreciate or depreciate over time.
Buildings: Buildings are another type of fixed asset that can be used for residential or commercial purposes. They can also be bought and sold, and their value can appreciate or depreciate over time.
Machinery: Machinery is a type of fixed asset that is used to produce goods or services. It includes factory equipment, office equipment, and vehicles. Machinery can be bought and sold, and its value can appreciate or depreciate over time.
Equipment: Equipment is a type of fixed asset that is used in conjunction with machinery to produce goods or services. It includes tools, dies, molds, patterns, jigs, fixtures, and test equipment. Equipment can be bought and sold, and its value can appreciate or depreciate over time.
Vehicles: Vehicles are a type of fixed asset that is used to transport people or goods from one place to another. They include cars, trucks, buses, vans, trailers, railway cars, boats, and aircraft. Vehicles can be bought and sold; however their value generally depreciates over
Conclusion
In conclusion, fixed assets are essential components of a well-managed and efficient business. They provide value to the enterprise over the long term and can be used to generate income in the present or future. Fixed assets also serve as a way for businesses to protect their capital from inflationary pressures or market downturns. For these reasons, it is important for businesses to properly identify and manage fixed assets in order to maximize their return on investment.