What is a fixed asset? Definition, examples, and how they are accounted for

A fixed asset is a physical item a business owns and uses to run its operations for more than one year. Land, buildings, vehicles, machinery, computers, tools and furniture are all typical fixed assets. On the balance sheet they are non-current assets, usually shown as property, plant and equipment (PP&E).

"Fixed" does not mean the asset cannot move — a delivery van is a fixed asset. It means the business is holding it for long-term use rather than to sell or use up. This guide covers the definition, examples, what does not count, how fixed assets are recorded and depreciated, and what a fixed asset register should hold. It does not set an accounting or tax treatment for a particular business.

The definition

The SEC's plain-language guide to financial statements describes fixed assets as property "not available for sale, such as trucks, office furniture and other property," and places them among non-current assets: things a company does not expect to convert to cash within one year.

The Federal Reserve's own property and equipment accounting manual describes the same characteristics for its fixed assets: physical items held for operations rather than sale, and long-term in nature, greater than one year.

Put together, a fixed asset has four characteristics:

1. It is tangible — a physical item you can see and touch.
2. The business owns it (or controls it under a finance lease).
3. It is used in operations, not held for sale to customers.
4. It will be used for more than one year.

Examples of fixed assets

What is not a fixed asset

The same object can land in different places depending on its purpose. A laptop is a fixed asset at an accounting firm and inventory at a computer store. Is equipment a current asset? walks through those cases.

Fixed assets vs current assets

The capitalization threshold

Not every durable purchase is recorded as a fixed asset. Businesses set a capitalization threshold: purchases below it are expensed immediately, even if they last several years, because tracking and depreciating a $40 drill costs more than it is worth.

Thresholds vary widely:

• For US tax purposes, the IRS de minimis safe harbor lets a business that elects it deduct amounts up to $2,500 per invoice or item, or up to $5,000 if it has an applicable financial statement.
• The Federal Reserve capitalizes equipment and furniture at $10,000 and buildings and land improvements at $100,000.

Choose a threshold that suits the size of the business, write it into your fixed asset policy, and apply it consistently. A purchase below the threshold can still be tracked operationally — who has it, where it is — without being a fixed asset on the books.

How fixed assets are accounted for

A fixed asset moves through four accounting stages:

1. Capitalize. Record the asset at its cost: the purchase price plus the costs to get it ready for use, such as delivery, installation and non-refundable taxes.
2. Depreciate. Spread that cost, less the expected salvage value, over the asset's useful life. Each period's charge is depreciation expense; the running total is accumulated depreciation.
3. Maintain and review. Routine repairs are expensed. Improvements that extend the asset's life or capacity may be capitalized. Useful lives and salvage values are reviewed periodically.
4. Dispose. When the asset is sold, scrapped or lost, remove its cost and accumulated depreciation and record any gain or loss. Our asset disposal guide covers the process.

Land is not depreciated. IRS Publication 946 explains that land "does not wear out, become obsolete, or get used up." Buildings and improvements on the land are depreciated separately.

For tax, Publication 946 sets out which property can be depreciated — broadly, property you own, use in your business, that has a determinable useful life and is expected to last more than one year — and the MACRS methods for doing so. Tax depreciation often differs from the depreciation in your books.

The fixed asset register

A fixed asset register is the list behind the PP&E line on the balance sheet. For each asset it should record at least:

• a unique asset number or tag;
• description, category, make, model and serial number;
• acquisition date, cost and supplier;
• location and, where relevant, the person responsible;
• useful life, salvage value and depreciation method;
• accumulated depreciation and net book value;
• disposal date, method and proceeds, when it leaves.

The register total should reconcile to the general ledger. Physical counts confirm that the assets on the register still exist and are where the register says. Our asset register guide includes a free template, and the depreciation schedule guide shows how to calculate the depreciation columns.

How AssetCenter fits

AssetCenter's fixed asset management software is a fixed asset register that also runs the asset's day-to-day life. Each asset has a tag, category, acquisition details and cost, and carries its assignment to a person or location, repairs, warranties and disposal on one timeline. Categories hold the useful life and end of life, the straight-line depreciation report shows accumulated depreciation and net book value for every asset, and both export to Excel for your accountant.

AssetCenter does not post journal entries, calculate tax depreciation, or replace your accounting system. It keeps the register those numbers come from accurate.

Frequently asked questions

Is a laptop a fixed asset?

Usually yes, if it costs more than your capitalization threshold and will be used for more than a year. Below the threshold, it is typically expensed.

Is a vehicle a fixed asset?

Yes, when the business owns it and uses it in operations. A vehicle held by a dealer for sale is inventory.

Is land a fixed asset?

Yes. Land is a fixed asset, but it is not depreciated.

Is software a fixed asset?

Most purchased and developed software is an intangible asset, amortized rather than depreciated. Some businesses group software bundled with hardware together with the equipment. Follow your accounting policy.

Are fixed assets current assets?

No. Fixed assets are non-current assets, because they are used over more than one year rather than converted to cash within the year.

What is another name for fixed assets?

Property, plant and equipment (PP&E), tangible assets, or capital assets.

Next step: sort your recent purchases

List what the business bought in the last year, apply the four characteristics and your capitalization threshold, and record the items that qualify in a fixed asset register. The free asset register template is a good place to start, and the asset class lookup finds the IRS recovery period for each one.

By Jeremy Francis

Founder & CEO, AssetCenter