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.
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 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.
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.
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.
- 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.