Fixed Asset vs. Current Asset: An Overview
A company's financial statement will generally classify its assets into distinct categories, including fixed assets and current assets.
- Fixed assets, also known as property, plant, and equipment (PP&E) and as capital assets, are tangible things that a company expects to use for more than one accounting period.
- Current assets, such as cash and inventory, are items that the company expects to use up or sell within a year.
Generally, a company's assets are the things that it owns or controls and intends to use for the benefit of the business. These might be things that support the company's primary operations, such as its buildings, or that generate revenue, such as machines or inventory.
Fixed Assets
In business, the term fixed asset applies to items that the company does not expect to consumed or sell within the accounting period. These are not resources used up during production, such as sheet metal or commodities the business would typically sell for income during that reporting year.
Fixed assets are sometimes described as tangible because they generally have some physical existence, unlike intangible assets such as goodwill, copyrights, intellectual property, and trademarks. Examples of fixed assets include manufacturing equipment, fleet vehicles, buildings, land, furniture and fixtures, vehicles, and personal computers.
Depreciation of Fixed Assets
Of course, things grow old, wear out, or fall out of use. As a business buys and puts a fixed asset into use, they begin the countdown on its useful life. Through accounting methods, they can depreciate the tangible item over its lifetime. A company will depreciate assets for both tax deductions and accounting reasons. When the item has a resell or market value that is less than the value on the company's balance sheet it becomes an impaired asset
Fixed Assets on the Balance Sheet
Fixed assets appear on the company's balance sheet under property, plant, and equipment (PP&E) holdings. These items also appear in the cash flow statements of the business when they make the initial purchase and when they sell or depreciate the asset. In a financial statement, noncurrent assets, including fixed assets, are those with benefits that are expected to last more than one year from the reporting date.
Current Assets
Current assets are assets that the company plans to use up or sell within one year from the reporting date. This category includes cash, accounts receivable, and short-term investments.
The company's inventory also belongs in this category, whether it consists of raw materials, works in progress, or finished goods. All these are classified as current assets because the company expects to generate cash when they are sold. These items provide for the day-to-day funding of business operations.
Similarly, accounts receivable should bring an inflow of cash, so they qualify as current assets.
Current assets are sometimes listed as current accounts or liquid assets.
Special Considerations
A personal computer is a fixed and noncurrent asset if it is to be used for more than a year to help produce goods that the company will sell. A vehicle is also a fixed and noncurrent asset if its use includes commuting or hauling company products.
However, property, plant, and equipment costs are generally reported on financial statements as a net of accumulated depreciation.
Noncurrent Assets
Aside from fixed assets and intangible assets, other types of noncurrent assets include long-term investments.
Investments in bonds are classified as short-term investments and current assets if they are expected to earn a higher rate of return than cash and if they have less than one year to maturity. Bonds with longer terms are classified as long-term investments and as noncurrent assets.
If You Want to Check a Company's Assets
If you're a stock investor or an employee of a public company, you may be interested in seeing what a company reports as its current and fixed assets, and how these numbers change over time. Public companies are required to report these numbers annually as part of their 10-K filings, and they are published online.
Key Takeaways
- Fixed assets are items of company property that are expected to be used long-term.
- Companies may use depreciation of fixed assets for tax and accounting reasons.
- Current assets are possessions that the company expects to use or monetize in the near term.
- Another term for current assets is liquid assets, meaning they are easily converted into income.
FAQs
Current assets are short-term assets that are typically used up in less than one year. Current assets are used in the day-to-day operations of a business to keep it running. Fixed assets are long-term, physical assets, such as property, plant, and equipment (PP&E). Fixed assets have a useful life of more than one year.
What is the difference between current asset and fixed asset? ›
Fixed assets, also known as property, plant, and equipment (PP&E) and as capital assets, are tangible things that a company expects to use for more than one accounting period. Current assets, such as cash and inventory, are items that the company expects to use up or sell within a year.
What is the difference between current assets and fixed assets in Quizlet? ›
Current assets can be converted into cash within one year, while fixed assets are more permanent and are usually held for a long time.
How do you explain fixed assets? ›
Fixed assets are physical or tangible assets a company owns and uses in its business operations to provide services and goods to its customers and help drive income. These assets, which are often equipment or property, provide the owner with long-term financial benefits.
What is the main difference between a fixed asset and a liquid asset? ›
Liquid assets, such as cash and marketable securities, can be converted into cash quickly, providing immediate funds to cover short-term financial needs. Conversely, fixed assets like buildings and machinery are designed for long-term use in a business's operations and are not easily converted into cash.
What is an example of a fixed asset? ›
Fixed assets can include buildings, computer equipment, software, furniture, land, machinery, and vehicles. For example, if a company sells produce, the delivery trucks it owns and uses are fixed assets. If a business creates a company parking lot, the parking lot is a fixed asset.
What is the difference between current and fixed assets Why is this distinction important? ›
Current assets are the assets that a business owns and expects to use or turn into cash within a year while fixed assets are resources for long term use. Both current and fixed assets are reported on the balance sheet with fixed assets often listed as property, plant and equipment (PPE).
What is the difference between current assets and current? ›
Current assets are those that you can convert into cash within one year, such as short-term investments and accounts receivable. Non-current assets are longer-term assets with a full value that you cannot recognize until after one year, such as property and machinery.
What is the difference between fixed assets and current assets PDF? ›
Fixed assets remain with the company for over a year; thus, they are called fixed assets. Their usefulness for the medium or long term. Current assets remain within the company for less than a year. Thus, they are short-term utility.
What does current asset mean? ›
A current asset, also known as a liquid asset, is any resource a company could use, turn into cash, or sell within a year. This includes cash in the bank, money that customers owe (accounts receivable), goods ready to be sold (inventory), and other investments that can be easily offloaded.
Explanation: Fixed assets are used for a long period of time and are purchased by the business for its regular operations of manufacturing goods and services for example machinery, equipment. These are bought with the intent of increasing the revenue of the business.
What is another name for a fixed asset? ›
Fixed assets are also known as non-current assets—assets that can't be easily converted into cash. Non-current assets can be intangible assets, like investments and intellectual property, as well as real estate and equipment.
What are the two types of fixed assets? ›
As aforementioned, fixed assets are of two types, tangible and intangible. The tangible assets are the physical properties like equipment and machinery, while the intangible assets include copyrights and trademarks. Intangible fixed assets lack physical existence.
What are 3 fixed assets? ›
Examples of Fixed Assets
- Land: Land used for business operations is a fixed asset. ...
- Buildings and factories: ...
- Furniture and fixtures: ...
- Leasehold improvements: ...
- Computer hardware, software and office equipment: ...
- Vehicles: ...
- Machinery and equipment: ...
- Tools:
Some common examples of fixed assets include vehicles, buildings, land, furnishings, and machines.
Is a car a fixed asset or current asset? ›
Yes, a car is regarded as a fixed asset or capital asset as it is useful for the business in the long term. But, one point to note is that the car is subject to depreciation.
What is meant by current asset? ›
A current asset, also known as a liquid asset, is any resource a company could use, turn into cash, or sell within a year. This includes cash in the bank, money that customers owe (accounts receivable), goods ready to be sold (inventory), and other investments that can be easily offloaded.
Is inventory a fixed or current asset? ›
Inventory is regarded as a current asset as the business as it includes raw materials and finished goods that can be converted into cash within one year or less.
Is accounts receivable a fixed asset? ›
As long as the company expects to collect the payment in less than a year, it falls under the category of current assets. However, if the accounts receivable remains stagnant for more than 12 months, it gets converted to long-term fixed assets.
