Fixed assets

Fixed assets are the long-lived, tangible items a business owns and uses to run its operations rather than to sell — equipment, vehicles, furniture, computers, machinery, and buildings. Also called property, plant, and equipment, they are expected to provide value for more than a single year.

Because the benefit is spread over years, a fixed asset is capitalized: it’s recorded as an asset on the balance sheet at its cost, not written off as an expense the moment it’s bought. Its cost is then moved to expense gradually through depreciation over the asset’s useful life.

Expensing a $30,000 vehicle in the month it’s purchased would crater that month’s profit and overstate it forever after — while leaving an asset the business clearly still owns nowhere on the balance sheet. Capitalizing and depreciating it matches the cost to the years the asset is actually used, so both the P&L and the balance sheet tell the truth.

A fixed-asset register that ties to the balance sheet — what’s owned, its cost, and accumulated depreciation — is part of solid bookkeeping. Assets expensed instead of capitalized, or depreciation never recorded, are common cleanup findings. Depreciation method and tax treatment are confirmed with your CPA or EA.

Current assets — cash, receivables, inventory — are expected to convert to cash within a year. Fixed assets are kept and used for years. And a small or short-lived purchase is simply an expense, written off at once: businesses set a capitalization threshold (for example, items over a few hundred or thousand dollars) below which it isn’t worth tracking as an asset.