Fixed Assets: Meaning, Examples & Accounting Explained

Fixed assets are long-term, tangible resources a business owns (such as equipment, buildings, machinery, and vehicles) that support daily operations and generate revenue over several years. They appear on the balance sheet as Property, Plant, and Equipment (PP&E) and gradually lose value through depreciation. Understanding fixed assets is essential for accurate bookkeeping, tax compliance, and evaluating a company’s long-term financial health.

This guide will cover:

• What fixed assets are and how they differ from current assets
• How fixed assets appear on financial statements
• Depreciation methods and accounting treatment
• How to calculate net fixed assets and turnover ratios
• Common examples and why fixed assets matter

Before we get into the details: tracking asset purchases starts with good documentation. Using Invoice Fly’s invoice management software helps small businesses record equipment purchases, vendor bills, and payments in one place, making fixed asset accounting cleaner and more accurate from the start.

What Is a Fixed Asset?

In accounting, fixed assets (also called noncurrent assets) are long-term, tangible items a business owns and uses to operate and not to resell. These assets are expected to provide value for more than one year and are listed on the balance sheet under Property, Plant, and Equipment (PP&E).

Get Started with Invoice Fly’s Software

Invoice Fly is a smart, fast, and easy-to-use invoicing software designed for freelancers, contractors, and small business owners. Create and send invoices, track payments, and manage your business — all in one place.

Get Started Now

Common fixed assets include land, buildings, machinery, office furniture, equipment, and vehicles.

In short: fixed assets are long-term, physical resources used in operations, recorded on the balance sheet, depreciated over time, and not easily converted to cash.

Read more on assets and liabilities in our guide.

Fixed Assets vs. Current Assets

The difference between current vs. fixed assets comes down to time and liquidity. Current assets like cash, inventory, and accounts receivable, are expected to be used or converted into cash within one year. Fixed assets support long-term operations and are not intended for quick sale.

Key Characteristics of a Fixed Asset

A characteristic of a fixed asset is that it is:

• Long-term: Useful life greater than one accounting year
• Tangible: A physical item that can be seen or touched
• Used in operations: Supports core business activity
• Depreciable: Cost is allocated over its useful life
• Illiquid: Not easily converted to cash

Understanding Fixed Asset Accounting

Understanding fixed asset accounting helps businesses record long-term assets accurately and report their true value over time. Proper classification and depreciation ensure financial statements reflect real operating capacity rather than short-term spending.

How Fixed Assets Appear on the Balance Sheet

Fixed assets in a balance sheet are reported under noncurrent assets as Property, Plant, and Equipment (PP&E). They are recorded at historical cost and reduced over time by accumulated depreciation.

According to the U.S. Bureau of Economic Analysis, fixed assets represent long-term investments that support productive capacity rather than short-term liquidity.

Fixed Assets and the Income Statement

Depreciation expense appears on the income statement, reducing net income while spreading asset costs across the periods they help generate revenue. This treatment follows accrual basis accounting, which records expenses when they are incurred rather than when cash changes hands.

For tax reporting, depreciation methods and recovery periods are set by the Internal Revenue Service, which outlines how different types of fixed assets must be depreciated for federal tax purposes.

Fixed Assets and the Statement of Cash Flows

Cash used to acquire fixed assets appears under investing activities on the cash flow statement. Depreciation is a non-cash expense and is added back to operating cash flow. Businesses reviewing asset purchases alongside liquidity should also understand common cash flow problems. 

Depreciating Fixed Assets: What You Need to Know

Fixed assets and depreciation are closely connected. Depreciation spreads the cost of a fixed asset over its useful life, helping match expenses with revenue and ensuring accurate profit reporting.

Straight-Line Depreciation

The most common method. Expense is evenly spread:
(Cost – Salvage Value) ÷ Useful Life

Double-Declining Balance

An accelerated method that records higher depreciation in earlier years.

Units of Production

Depreciation based on actual usage or output rather than time.

Sum-of-the-Years-Digits

An accelerated method using a declining fraction over the asset’s life.

Accumulated Depreciation

The total depreciation recorded to date. It offsets the asset’s gross cost on the balance sheet. For step-by-step examples, see our guide on how to calculate depreciation.

How Fixed Assets Are Acquired and Disposed

Acquisition and Capitalization

When a fixed asset is purchased, it is capitalized at cost. This includes the purchase price plus delivery, installation, and setup costs. A capitalization policy sets minimum thresholds for expensing versus capitalizing items.

Revaluations, Impairments & Fixed Asset Reconciliation

Over time, assets may lose value due to damage, obsolescence, or reduced usefulness. Impairment occurs when an asset’s carrying value exceeds its recoverable amount. Fixed asset reconciliation ensures asset records match the general ledger and supports audit readiness. 

Disposal and Sale

When an asset is sold, traded, or retired, businesses must remove the asset’s cost and accumulated depreciation from the books and record any gain or loss.

Calculating Fixed Assets

Calculating fixed assets shows how much a business has invested in long-term resources and how much value remains after depreciation, helping support accurate reporting and analysis.

Gross vs. Net Fixed Assets

• Gross fixed assets: Original purchase cost
• Net fixed assets: Gross cost minus accumulated depreciation

How to Calculate Net Fixed Assets

Net Fixed Assets = Gross Fixed Assets – Accumulated Depreciation

This figure shows the remaining book value of long-term investments.

Capitalization Policy & Materiality

Materiality thresholds help ensure consistency and accuracy in asset reporting.

What Is a Fixed Asset Turnover Ratio?

The fixed asset turnover ratio measures how efficiently a business uses fixed assets to generate revenue.

How to Calculate the Asset Turnover Ratio

Net Sales ÷ Average Net Fixed Assets

What Is a Good Turnover Ratio?

A “good” ratio varies by industry. Capital-intensive businesses often have lower ratios than service businesses. Reviewing this metric alongside other profitability ratios provides better insight.

Examples of Fixed Assets

An example of a fixed asset includes:

• Land
• Buildings and factories
• Furniture, fixtures, and office equipment
• Machinery and tools
• Vehicles
• Leasehold improvements
• Computer hardware and some software

So, is equipment a fixed asset? In most cases, yes—if it’s used long term in operations.

What Are Other Types of Noncurrent Assets?

Intangible Assets

Patents, trademarks, and goodwill. These are amortized rather than depreciated.

Right-of-Use (ROU) Assets vs Fixed Assets

ROU assets arise from lease agreements and differ from traditionally owned fixed assets.

Operating vs Non-Operating Assets

Operating assets support core business activity, while non-operating assets do not directly generate revenue.

What Is the Life Cycle of a Fixed Asset?

The life cycle of a fixed asset covers every stage an asset passes through, from purchase to disposal. Managing each stage improves accuracy, compliance, and long-term planning.

• Acquisition: Asset is purchased, built, or obtained and capitalized
• Depreciation: Cost is allocated over its useful life
• Revaluation & Impairment: Value is adjusted when conditions change
• Disposals: Asset is sold, retired, or scrapped
• Transfers: Asset moves between departments or locations

Why Are Fixed Assets Important?

Fixed assets influence how a business operates, grows, and is evaluated financially.

Support Business Operations

They provide the physical foundation for producing goods and delivering services. Without reliable fixed assets, productivity drops and costs rise.

Increase Valuation

A strong, well-documented asset base signals stability to lenders and investors. According to the U.S. Bureau of Economic Analysis, fixed assets reflect long-term productive capacity rather than short-term liquidity.

Improve Long-Term Growth

Strategic asset investments support efficiency, scalability, and higher output without matching increases in labor or overhead.

Ready to Take Control of Your Fixed Assets?

Fixed assets like equipment, vehicles, and office upgrades represent real money tied up in your business. When purchases aren’t documented properly, depreciation schedules become harder to manage and financial reports lose reliability. Using a simple system to track asset-related purchases helps avoid those issues.With Invoice Fly’s invoice management, you can record fixed asset purchases, store supporting documentation, and keep everything organized for bookkeeping, tax prep, and year-end reviews.

Get Started with Invoice Fly’s Software

Invoice Fly is a smart, fast, and easy-to-use invoicing software designed for freelancers, contractors, and small business owners. Create and send invoices, track payments, and manage your business — all in one place.

Get Started Now