Fixed assets are core to business operations, enabling revenue generation and long-term growth. Managing and accounting for them properly supports accurate reporting, tax compliance, and better decision-making. This glossary outlines key terms, formulas, and best practices to help you understand their role in a company’s financial health.
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Fixed assets—also called non-current assets—are long-term tangible and intangible resources a business acquires for continued use in its operations. Examples include equipment, vehicles, machinery, furniture, and computer systems.
Unlike current assets, they aren't easily converted into cash. Because these assets wear down over time, their cost is gradually expensed through depreciation. Fixed assets are expected to provide value for more than one year and are typically listed on the balance sheet under Property, Plant, and Equipment (PP&E).
Fixed assets are essential to the stability, growth, and everyday function of nearly every business. Here’s why they’re so important:
Assets like machinery, vehicles, and equipment are foundational to delivering products and services. Without them, most businesses couldn't operate or generate income.
Fixed assets provide benefits over multiple years. A delivery van or production facility continues to support operations well beyond its purchase date—and in some cases, like land, may even gain value over time.
As high-value resources, fixed assets enhance a company’s net worth. A strong asset base signals financial health and growth potential, making the business more attractive to lenders, investors, and buyers.
Fixed assets can be used as collateral to secure loans or credit, giving businesses access to capital for expansion or to manage financial challenges.
Fixed assets appear on the balance sheet and depreciate over time, influencing profit, taxes, and financial ratios. They must be accurately tracked for reporting and compliance with accounting and tax rules.
Monitoring fixed assets helps with planning for maintenance, upgrades, or replacements—reducing downtime and surprise expenses. It also prevents loss and boosts ROI by tracking usage and performance.
Having a clear view of your assets’ value and condition helps guide budgeting, capital planning, and resource allocation, supporting your strategy and scalability.
The IRS allows businesses to deduct the cost of fixed assets over time through depreciation or, in some cases, immediately through Section 179 or bonus depreciation. These deductions can substantially reduce taxable income and improve cash flow.
Current and fixed assets are both vital to a business, but they serve different roles and are treated differently in financial reporting. Here’s how they compare:
Fixed assets comprise both tangible and intangible resources that support ongoing operations, drive revenue, and contribute to business growth. Here's a breakdown of each category:
Tangible fixed assets are physical, long-term assets a business owns and uses in its operations. These assets are not intended for resale and typically provide value over multiple years.
Common examples include:
Intangible fixed assets are non-physical, long-term assets that deliver value through legal rights, intellectual property, or brand recognition.
The following are examples of intangible assets:
Yes, most fixed assets depreciate over time, except for land. Tangible assets like buildings, equipment, vehicles, and machinery gradually lose value as they’re used and age. This loss in value, known as depreciation, is tracked over the asset’s useful life and reflected on the balance sheet under Property, Plant, and Equipment (PP&E).
Land isn’t depreciated because it typically doesn’t wear out or decrease in value over time.
Managing fixed assets involves four main stages, each with specific activities and considerations.
The acquisition stage is when a business purchases or acquires a fixed asset for its operations. The asset is recorded on the balance sheet at its purchase price, including any costs needed to get it ready for use, such as installation or delivery fees.
Depreciation is the process of spreading a fixed asset’s cost over its useful life, reflecting wear, tear, and obsolescence. It reduces the asset’s book value over time and provides tax-deductible expenses each year.
Most assets (excluding land) are depreciated according to IRS guidelines. However, under the de minimis safe harbor rule, businesses can elect to expense certain lower-cost items—typically those costing $2,500 per item or invoice—immediately rather than depreciating them over several years.
Note on intangible assets: While tangible assets are typically depreciated (or amortized, in the case of definite-lived intangibles), some intangible assets, like goodwill, are not. Instead, they must be tested for impairment annually or when a triggering event occurs. If the asset’s carrying value exceeds its fair value, the difference is recognized as an impairment loss.
Most fixed assets require regular maintenance and occasional repairs throughout their useful life. These expenses are typically recorded as they occur and don’t affect the asset’s book value, unless they significantly extend its life or enhance its performance.
When a fixed asset reaches the end of its useful life or is no longer needed, the business disposes of it by selling, retiring, or scrapping it. The business removes the asset’s cost and accumulated depreciation from the books and records any resulting gain or loss.
Support throughout the fixed asset lifecycle
Accurate fixed asset tracking is essential for proper financial reporting, tax compliance, and long-term planning. But managing the bookkeeping details like depreciation, maintenance, and disposal can be complex and time-consuming. QuickBooks accounting software has tools that can help you:
Need extra support? Live bookkeeping services from QuickBooks-certified experts can assist with setup, tracking, and reporting at every stage.
Fixed asset accounting is the process of tracking and reporting a business’s long-term assets. It’s critical for financial reporting, tax compliance, and sound business planning. Fixed asset accounting spans the entire lifecycle—from acquisition and depreciation to audits, revaluation, impairment, and eventual disposal.
While this type of accounting involves several formulas and calculations, the most common ones are outlined below. Since adding and managing fixed assets, calculating book depreciation, and generating reports can be complex, businesses often rely on a tool like QuickBooks to facilitate and automate the accounting process.
Net fixed assets reflect the current value of your long-term assets after depreciation.
Net Fixed Assets = Gross Fixed Assets – Accumulated Depreciation
Why it matters: Net fixed assets show the current value of your long-term assets, helping you plan for replacements and future investments.
Straight-line depreciation spreads the cost of an asset evenly over its useful life.
Annual Depreciation Expense = (Cost of Asset – Salvage Value) ÷ Useful Life
Why it matters: The straight-line depreciation formula helps you anticipate future expenses, decide when to replace assets, and stay prepared for tax time.
Note: Intangible assets, such as patents or trademarks, are expensed using amortization, which works much like straight-line depreciation for tangible assets. The straight-line amortization formula is:
Annual Amortization Expense = (Cost of Asset – Salvage Value) ÷ Useful Life — spreading the expense evenly over the asset’s useful life.
There are also other depreciation methods to consider. The declining balance method accelerates depreciation, making it useful for assets that lose value quickly in the early years. The units of production method ties depreciation to actual usage, which may be a better fit for equipment or machinery with variable output.
The fixed asset turnover ratio measures how efficiently your business uses its fixed assets to generate sales.
Fixed Asset Turnover Ratio = Net Sales / Average Net Fixed Assets
Why it matters: This ratio shows how well your fixed assets are being used to drive revenue. What qualifies as a “good” turnover ratio depends on your industry, but in general, a higher ratio suggests more efficient use of fixed assets.
A fixed asset schedule is a detailed record of key information and financial activity for each fixed asset a business owns. It covers the entire asset lifecycle—from acquisition to depreciation to disposal—and helps ensure accurate accounting and compliance.
A fixed asset schedule usually tracks:
Tools like QuickBooks can automatically generate a fixed asset schedule based on the details you enter.
Effective fixed asset management helps ensure accurate records, tax compliance, and smarter decision-making. Here are key practices to follow:
Organize your chart of accounts
Tag and track assets
Automate depreciation
Maintain an asset schedule
Reconcile regularly
Set capitalization thresholds
Manage the full lifecycle
Work with a professional
Fixed assets appear on the balance sheet under “Non-Current Assets,” typically grouped as Property, Plant, and Equipment (PP&E). They’re recorded at their original cost, with accumulated depreciation shown separately to reflect net book value. In journal entries, fixed assets are debited when acquired and gradually depreciated through periodic expense entries.
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