Fixed assets, also known as property, plant and equipment (PP&E), are tangible assets that a company expects to use for more than one accounting period. They are part of the non-current assets of an entity, and are different from cash and other current assets that will be used up within the accounting period.
To learn more about asset classes, check out “What is the difference between tangible and intangible assets?”
Understanding Assets
Essentially, assets are things that a company owns or controls in order to benefit from their use in some way. Assets can be things that either support the primary operations of a company, such as buildings, or that generate revenue for the company, such as machines or inventory.
Examples of fixed assets include buildings, land, furniture and fixtures, vehicles and personal computers. Fixed assets are described as tangible because they generally have some form of physical substance, unlike intangible assets such as goodwill, copyrights and trademarks. In a financial statement, non-current assets, including fixed assets, are those with benefits that are expected to last more than one year from the reporting date.
Current assets such as cash, inventory, accounts receivable and short-term investments are assets that the company plans to use up or convert into cash within one year from the reporting date. Inventory is classified as a current asset because cash is expected to be generated when the company sells the inventory. Likewise, accounts receivable should bring an inflow of cash.
A personal computer is a fixed and non-current asset if it is to be used for more than a year to help produce consumer goods that the company will sell. A vehicle is also a fixed and non-current asset if its purposes will include commuting or transportation of company products, for instance. PP&E is generally reported in financial statements as net of accumulated depreciation.
Aside from fixed assets, other types of non-current assets include intangible assets and long-term investments. Investments in bonds are classified as short-term investments and current assets, if they are expected to earn a higher rate of return than cash and if they have less than one year to maturity. Bonds with longer terms are classified as long-term investments and as non-current assets.