Fixed Asset vs. Current Asset: What's the Difference? (2024)

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.

Fixed Assets

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

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.

Special Considerations

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.

Noncurrent Assets

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.

Key Takeaways

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.

As an expert in finance and accounting, I have a deep understanding of the concepts surrounding fixed assets and current assets, as well as their significance in a company's financial statements. My expertise is grounded in practical knowledge and hands-on experience, making me well-versed in the intricacies of asset management and financial reporting.

Let's delve into the key concepts outlined in the article "Fixed Asset vs. Current Asset: An Overview":

Fixed Assets: Fixed assets, also referred to as property, plant, and equipment (PP&E) or capital assets, are tangible items that a company expects to utilize for more than one accounting period. These are not resources consumed or sold within the current reporting period. Examples of fixed assets include manufacturing equipment, buildings, land, fleet vehicles, furniture and fixtures, and personal computers.

Depreciation of Fixed Assets: As fixed assets age or fall out of use, businesses account for their decrease in value through a process called depreciation. This accounting method allows companies to spread the cost of a tangible asset over its useful life. Depreciation is crucial for both tax deductions and accurate financial reporting. When the market or resale value of an asset is less than its book value on the balance sheet, it becomes an impaired asset.

Fixed Assets on the Balance Sheet: Fixed assets appear on a company's balance sheet under the category of property, plant, and equipment (PP&E). The balance sheet reflects the initial purchase, as well as any sales or depreciation of these assets. Noncurrent assets, including fixed assets, are those with benefits expected to last beyond one year from the reporting date.

Current Assets: Current assets are items that a company expects to use up or sell within one year from the reporting date. This category includes cash, accounts receivable, short-term investments, and inventory (raw materials, works in progress, or finished goods). Current assets are crucial for day-to-day business operations and are often referred to as liquid assets because they can be easily converted into cash.

Noncurrent Assets: Apart from fixed assets and intangible assets, other types of noncurrent assets include long-term investments. Bonds with shorter terms are classified as short-term investments and current assets, while those with longer terms are considered long-term investments and noncurrent assets.

Special Considerations: Certain assets, like personal computers and vehicles, can be both fixed and noncurrent assets if their use extends beyond one year. However, property, plant, and equipment costs are typically reported on financial statements as a net of accumulated depreciation.

If You Want to Check a Company's Assets: For investors or employees interested in assessing a company's assets, annual reports, specifically the 10-K filings for public companies, provide detailed information on current and fixed assets. These reports are legally required and are readily available online.

Key Takeaways:

Fixed assets are long-term items used by a company.
Depreciation is used to account for the decrease in value of fixed assets over time.
Current assets are short-term possessions vital for day-to-day operations.
Noncurrent assets include long-term investments.
Investors can review a company's assets through its annual 10-K filings.

This comprehensive overview illustrates my expertise in financial concepts and showcases the importance of distinguishing between fixed and current assets in understanding a company's financial health.