What are "fixed assets"?

Fixed assets are defined as long-term tangible assets that a company uses in its operational activities to generate income. These assets are typically not intended for sale in the regular course of business but rather support the day-to-day functioning of the organization. Examples of fixed assets include property, plant, and equipment such as buildings, machinery, vehicles, and furniture. They are characterized by their durability and long-term use, often providing benefits over multiple accounting periods.

The significance of fixed assets lies in their contribution to a company's operational capacity. Since they are used for a lengthy duration, fixed assets are typically recorded on the balance sheet at their purchase price, less any accumulated depreciation, which accounts for their wear and tear over time. This allows companies to spread the cost of the asset over its useful life, reflecting its declining value as it ages and is used.

In contrast, assets that can be easily sold do not fit the definition of fixed assets as they are generally classified as current assets. Cash equivalents held by the company or temporary investments in stocks are also classified differently, focusing more on liquidity or short-term investment strategies rather than long-term operational use. Thus, the distinction of fixed assets as long-term tangible assets emphasizes their role in sustaining a company’s ongoing operations and strategic goals