A tangible piece of property that a company owns and uses in generating income which is not expected to be consumed or converted into cash in less than one year’s time.
Most of the time, fixed assets are purchased with the intent of productive use, not short-term financial gains. As a result, assets like inventory and most production supplies cannot be considered fixed assets as the purpose of these items is rooting in selling them outright or integrating them into products to be sold outright.
Common fixed assets include buildings and real estate, furniture and fixtures, machinery and company vehicles, software and office equipment and certain intangible assets. As fixed assets are meant to serve a useful purpose for longer than one year, these assets are not usually liquid and are not easily converted into income. Instead, they are used to produce a company’s goods and services until they are no longer especially useful for that purpose. At that point, a fixed asset is usually sold for salvage value and written off the company’s balance sheets as an asset no longer in use by the business.
Fixed assets are commonly referred to in business and finance circles as Property, Plant and Equipment (PP&E) or capital assets.
Wife: “I think you should sell that stupid motorcycle. It makes me nervous every time you ride it.”
Spouse: “Nope. Can’t. It’s a fixed company asset.”
Wife: “How exactly does that motorcycle help your company to mass produce bread and cereal?”