Fixed Assets Definition, Types, And Importance

An asset, by definition, is a resource with economic value that a person

, corporation or country owns with the expectation that it can generate cash flow and ultimately generate income. Fixed assets are a form of asset that has a long-term application, which the owner does not intend to sell for a minimum of one year. Fixed assets are otherwise known as non-current assets or property, plant, and equipment (PP&E). Typically, fixed assets are not bought to be made available on the market and are not kept to be turned into cash. These are rather purchased for extended, continued use in order to make products or services available to customers.

Fixed assets are classified in a balance sheet as tangible, intangible, or investments. Real, actual, and physical properties owned by a person or business are referred to as tangible assets. Nearly all tangible assets can be readily converted to cash (or are already cash). Land, buildings, motor vehicles, machineries and equipment, bank deposits, and furniture are common examples of tangible assets.

Fixed assets can likewise be intangible. Intangible assets are non-physical in nature which can possibly have the chance of generating income in the future, but are not currently something that can be sold for profit. As opposed to tangible assets, intangible assets cannot be quickly turned into cash. Examples of intangible assets include trademarks, motion pictures, licensing agreements, broadcast rights, franchise agreements and copyrights.

Fixed assets are a steady and secure source of earnings. Fixed assets are very important in businesses. Without these, businesses would fail to grow and ultimately would not be able to create products and services. It is essential, therefore, for any organization to handle their fixed assets very carefully. Mismanaging these could result to problems like paying higher taxes, overpaying on insurance premiums and missing out on income tax deductions.

During these days of economic crisis, no one wants a busted business. Moreover, no businessman would want to dismiss anyone from responsibility. Fixed assets are the framework of any organization. It is for this reason that makes it vital for any company to look closely at their fixed assets and take better care of everything else that it owns.

by: Lucy

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