CandleFocus

Fixed Asset

Candlefocus Editor
When it comes to the financial statements of a company, most of the attention focuses on financial assets such as cash and investments, but the most important assets to the long-term health and viability of a business often lie in the form of its fixed assets. Fixed assets are any resources used in the operation of a business that are not expected to be converted into cash or consumed within a year. Examples of these include buildings, land, equipment, plant, and machinery. Fixed assets can be tangible, such as buildings, or intangible, such as patents.

Fixed assets are essential for businesses to generate income and should be listed in the balance sheet on the asset side. They are listed at acquisition or construction cost, less any accumulated depreciation or amortization. These assets remain on the books and are not liquidated. However, when the estimated useful life of the asset ends, it is written off the books.

When businesses purchase and use fixed assets, they are depreciated over the estimated useful life of the asset. This is because a fixed asset's value goes down over time due to factors such as wear and tear, obsolescence, and changing markets. Many businesses choose to depreciate the asset in equal portions year after year while some opt for accelerated depreciation. Although the expense associated with fixed assets is recognized on the income statement, it ultimately helps to reduce the taxable income of a business, thus reducing its income tax liability.

Fixed assets play an important role in businesses, as they are essential for companies to generate income and maintain their operations. A company with a healthy balance of financial and fixed assets is better able to withstand difficult economic times, as well as potential legal and financial difficulties. By adhering to appropriate accounting standards, businesses can ensure that they are properly accounting for their fixed assets, taking into consideration depreciation and amortization, and using these assets to their full benefit.

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