Fixed assets are assets with a long-term lifespan that are used to produce income or help a business run, such as land, property, vehicles, or equipment. When these assets are purchased, they are capitalized, meaning they are recorded on the balance sheet as an asset and are depreciated over time.
How Are Fixed Assets Used?
A fixed asset is any resource owned by a company necessary for day-to-day operations. Examples of fixed assets include office furniture, computers and other technology, delivery vehicles, manufacturing tools, and real estate. These assets typically have a useful life of more than a year and are considered long-term investments. As such, they are recorded in a company’s balance sheet and are depreciated over time.
Why Are Fixed Assets Important for Companies?
Fixed assets are an important part of businesses because they allow companies to produce income or help them run. For example, a manufacturing business may purchase a new machine that increases their productivity and output. This asset may eventually need to be replaced, but until then, it will be responsible for generating sales and profits. Likewise, a company may purchase a delivery truck, which helps them transport goods and acquire new customers.
Planning for and Managing Fixed Assets
Companies should plan carefully and budget for fixed assets. A company should understand which assets are necessary to continue operations in a cost-effective manner and should prioritize which assets should be purchased before others. Companies should also be mindful of the depreciation of their assets and consider planning for replacements when necessary.