What Is a Fixed Asset? Types and Examples

The term fixed asset is a broad identifier for physical items of value that a company owns and uses to complete internal or external operations. They are often used for a long time and shared between people throughout an organization, changing locations throughout their lifecycles.

Fixed assets are non-current (non-liquid) and non-consumable. Consumable items or stock/inventory require unique tracking systems, whereas this guide overviews best practices for tracking and managing fixed assets. Many companies and government agencies must track their fixed assets due to compliance regulations, but more entities are discovering that managing these valuable items helps avoid loss and aids in data-driven decisions. 

Main Takeaways from This Article:

• Fixed assets are crucial, often expensive physical items like machinery, vehicles, and office equipment that sustain business operations.
• Fixed assets often require significant investment, depreciate over time, and aid in long-term financial planning.
• Effective tracking of fixed assets can lead to improved maintenance, cost savings, and better budgeting decisions.
• Utilizing tools like RedBeam's asset-tracking software can significantly streamline the management and monitoring of fixed assets.
  
  

What Is a Fixed Asset?

As previously stated, a fixed asset is a long-term or permanent piece of property owned by a company for its operations. Unlike short-term assets, such as consumable inventory or stock, fixed assets are not intended for sale, and the assets are not disposed of after use. On the contrary, fixed assets often require a specific management tool to track loans or rentals like a tool crib or a library.

Fixed does not mean that the asset remains in the same location throughout its lifecycle, which is why it is crucial to know when assets are moved, where they are moved, who moved them and why. Organizations can gain visibility of fixed assets by taking annual or semi-annual cycle counts. Classically implemented with pen and paper or spreadsheets, cycle counts are more commonly done with barcodes and RFID technology today to fight fixed asset loss.

Why Are Fixed Assets Important?

Companies need to have visibility of these assets because they ultimately power revenue generation and optimize daily operations. Simply put, maintaining these assets accelerates production and enhances service delivery, regardless of the industry. Each vertical requires particular fixed assets in order to work.

Additionally, fixed assets strengthen a company’s financial standing by boosting net worth and improving balance sheet metrics. These assets attract investors and stakeholders by showcasing growth potential and profitability.

Depreciation of Fixed Assets

Another reason an organization should consider tracking its fixed assets is because they will ultimately need to be replaced as fixed assets experience wear and tear through their long-time use. Whether a laptop in an office space, a tool in a construction field or a company-owned vehicle, fixed assets will experience depreciation of value over time. 

Different tracking systems offer different depreciation methods. A simple calculation for straight-line depreciation considers when as asset was purchased, how much money it was purchased for, its recovery period, and its salvage (or residual) value. Under this method, the asset’s value decreases by an equal amount each year until it reaches its salvage value. Other types of depreciation calculations such as declining balance, units of production and sum-of-the-years’-digits are more complex and may be specific to types of fixed assets.

Types and Examples of Fixed Assets

Machinery such as production equipment, factory machines, and specialized tools used to create products are great examples of fixed assets. Others include industrial ovens, assembly line robots and printers. 

Vehicles such as delivery trucks, company cars, forklifts, and other transportation equipment also require much attention and management. Trailers which transport goods to different locations are another great example of fixed assets. 

RedBeam even has a specific Yard Management Software for trailer tracking which utilizes radio frequency identification. As a yard dog drives around a lot, an attached RFID fixed reader with two antennas on either side captures GPS coordinates of each trailer with an RFID tag, sending that information back to the system so that operators can easily find specific trailers when they need to.

As previously mentioned, every company has computers, copiers, servers, and networking equipment which likely also need to be accounted for, especially being that these assets are often assigned to employees for long-time use and may have warranties that need to be tracked. Think about enterprise organizations with company phones and laptops for hundreds to thousands of employees. It is a crucial expenditure to have visibility of the full lifecycles of those assets. 

Less commonly thought about, the physical structures that house your operations are also fixed assets. This includes factories, warehouses, office buildings, retail storefronts, and any other land or structures your company owns. 

And of course, the furniture that fills those spaces is also considered fixed assets such as desks, chairs, filing cabinets and bookshelves.  

Recording and Tracking Fixed Assets

Maintaining accurate and detailed records of all fixed assets can be critical for effective asset management. This includes meticulous documentation of purchase dates, costs, upgrades, and depreciation. 

• Purchase Dates: Knowing when an asset was acquired helps determine warranties and lifecycle.
• Costs: Tracking costs is essential for budgeting, financial analysis and calculating depreciation.
• Upgrades: Documenting upgrades, leases, warranties and maintenance logs ensures that the assets’ current value is accurately represented.
• Depreciation: Monitoring depreciation helps with accurate financial reporting and tax deductions.

Compliance and Reporting

Accurate fixed asset records not only aid in financial reporting but also enhance operational efficiency and compliance. The business world runs on rules, and fixed asset accounting is no exception. Regulatory bodies establish guidelines for how companies record and report on their assets.

Accounting standards, like Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), dictate how fixed assets are valued and depreciated. Maintaining accurate records ensures your financial statements comply with these regulations. This avoids potential penalties or delays during audits.

Financial statements paint a picture of your company's health. Without proper fixed asset documentation, the value of your assets could be misrepresented, leading to inaccurate financial reporting, misleading investors, creditors, and other stakeholders who rely on your financial health to make informed decisions.

Tips for Managing Your Company's Fixed Assets Effectively

While asset-tracking systems may vary among organizations, here are some universally beneficial tips for effective fixed asset management:

• Maintain an Accurate Tracking System: Unlike pen and paper and spreadsheets with manual entry, barcode and RFID systems are a fail-safe to human error.
• Distinguish Owned from Leased Assets: Owned assets are "capitalized," while leased assets are categorized as expenses. 
• Segregate Records for Different Asset Types: Maintain separate records for assets leased for company use and those utilized in other capacities, as this affects equity calculations.
• Monitor Depreciation Accurately: Track depreciation as it occurs and perform regular annual reviews to adjust financial records and reflect asset value accurately.
• Keep Detailed and Current Records: Ensuring your records are accurate and up to date facilitates better decision-making regarding asset management and supports precise cost tracking for taxation purposes.

Optimize Your Asset Strategy with RedBeam

Managing fixed assets doesn’t have to be complicated. RedBeam streamlines every step of the process, helping you save time, reduce costs, and ensure compliance. Here’s how:

• Faster Audits: Centralized, user-friendly data storage makes audits up to 70% quicker and more accurate with barcodes. This percentage is even higher for RedBeam RFID systems.
• Enhanced Asset Visibility: Track, locate, and assign assets, reducing risks of loss or misuse.
• Regulatory Compliance: Maintain precise records to meet financial standards and avoid penalties.
• Scalable Solutions: Adapt to your business needs, supporting unlimited locations and transfers.
• Enterprise-Grade Hardware: With Zebra Technologies’ barcoding and tracking solutions, RedBeam’s user-friendly interface simplifies scanning and eliminates manual processes. (A Zebra warranty assures that hardware investments are protected)
• Seamless Integrations: Capture data via RedBeam and pass that information to other back office systems for easy communication organization wide.
• Complete Tracking: Get detailed, date-stamped logs for transparent asset management.
• POC: Start with a free 30-day trial of RedBeam and work with a software application specialist to get set up for free today.

FAQs

Are Fixed Assets Considered Tangible or Intangible Assets?

Fixed assets are tangible assets, unlike intangible assets like brand reputation or intellectual property. 

How Do You Classify Fixed Assets?

Fixed assets are typically classified on the company's balance sheet under property, plant, and equipment (PP&E). They can be further categorized based on their specific function, such as machinery, buildings, or furniture.

What Are Net Fixed Assets?

Net Fixed Assets are a company's long-term tangible assets minus accumulated depreciation. They represent the current book value of assets such as machinery, buildings, or vehicles that are used in operations. Calculated using the formula: 

Net Fixed Assets = Total Fixed Assets - Accumulated Depreciation

this figure indicates the remaining value of assets after accounting for wear and tear. Businesses use net fixed assets to assess investment longevity and operational capacity. For example, a factory's equipment valued at $1 million with $300,000 depreciation has net fixed assets of $700,000.

What Is Fixed Asset Turnover Ratio?

Fixed asset turnover ratio shows how efficiently a company generates sales from its fixed assets. Calculated as: 

Net Sales ÷ Average Net Fixed Assets

A higher ratio indicates better asset utilization. For example, $1M in sales with $500K in fixed assets yields a ratio of 2, meaning $2 in sales per $1 of assets.

What Is the Minimum Amount for A Fixed Asset?

There's no universally defined minimum amount for a fixed asset. The key factor is whether the item is expected to last more than one year and has significant value to warrant inclusion on the company's balance sheet. Generally, companies establish their own capitalization thresholds to determine which assets qualify as fixed assets.

How To Write Off Fixed Assets?

When a fixed asset reaches the end of its useful life or is no longer needed, it's removed from the company's books through a process called depreciation. The accumulated depreciation is subtracted from the original asset cost, resulting in a final book value. The asset may then be disposed of, and any remaining value can be recognized as a gain or loss on the company's income statement.