What are fixed assets?

Published Thursday 18 June 2026

Table of contents

• What are fixed assets?
• Examples of fixed assets
• Key characteristics of fixed assets
• Fixed assets vs current assets
• How are fixed assets depreciated?
• The fixed asset lifecycle
• How to calculate net fixed assets
• Why fixed assets matter for your business
• Tips for tracking and managing fixed assets
• Manage your fixed assets with Xero
• FAQs on fixed assets

Key takeaways

• Fixed assets are long-term physical items your business owns and uses for more than 1 year, such as equipment, vehicles, and buildings. They appear on your balance sheet as property, plant and equipment (PP&E).
• Most fixed assets lose value over time through depreciation, which lets you deduct a portion of the cost each year on your taxes. Land is the one exception: it doesn't depreciate.
• Tracking your fixed assets accurately helps you understand your business's true financial health, secure loans, and make smarter decisions about when to repair, replace, or sell equipment.
• A fixed asset register and cloud accounting software can simplify how you record, depreciate, and manage your assets throughout their entire lifecycle.

What are fixed assets?

Fixed assets are long-term physical items your business owns and uses to generate revenue. Unlike supplies you use up quickly or inventory you sell, fixed assets stick around for more than 1 year. Think of the equipment in your workshop, the delivery van in your parking lot, or the computers on your team's desks.

On your balance sheet, fixed assets are listed under property, plant and equipment (PP&E). They're considered non-current assets because you don't plan to convert them into cash within the next 12 months. Instead, they support your day-to-day operations over several years.

Each fixed asset has a useful life: the period you expect to use it before it wears out, becomes outdated, or loses its value. That useful life determines how you spread the cost of the asset across your financial statements through depreciation.

Examples of fixed assets

Fixed assets come in many forms depending on your industry and how your business operates. Here are some of the most common types.

• Land: the property your business sits on or owns for future use
• Buildings: offices, warehouses, retail stores, and other structures
• Machinery: production equipment, manufacturing tools, and industrial machines
• Vehicles: delivery trucks, company cars, and fleet vehicles
• Furniture and fixtures: desks, chairs, shelving, and built-in lighting
• Computer and office equipment: laptops, servers, printers, copiers, and phone systems
• Software: when you purchase it outright and capitalize the cost rather than paying a monthly subscription

What counts as a fixed asset depends on your business type. A laptop is a fixed asset for a consulting firm, but for an electronics retailer, laptops in stock are inventory. The key question is whether you're using the item in operations or selling it to customers.

Key characteristics of fixed assets

Not every purchase qualifies as a fixed asset. To be classified as one, an item typically needs to meet several criteria.

• Useful life longer than 1 year: the asset must serve your business over multiple accounting periods.
• Subject to depreciation: most fixed assets lose value over time and are depreciated on your financial statements. Land is the one exception.
• Illiquid: you can't quickly or easily convert fixed assets into cash the way you can with inventory or receivables.
• Used in operations: the asset helps your business produce goods, deliver services, or run its day-to-day activities.
• Recorded as PP&E on the balance sheet: fixed assets appear under property, plant and equipment, separate from current assets like cash or accounts receivable.

Fixed assets vs current assets

Your balance sheet splits assets into 2 main categories: current assets and fixed assets. Understanding the difference helps you read your financial statements and plan your spending.

Current assets are items you expect to use up, sell, or convert to cash within 1 year. These include cash in your bank account, inventory you plan to sell, accounts receivable from customers who owe you, and prepaid expenses. Current assets are liquid, meaning you can access their value quickly. They aren't depreciated because they're consumed or converted in the short term.

Fixed assets are long-term resources you use in operations for more than 1 year. They're illiquid: selling a building or a piece of machinery takes time and effort. Most fixed assets are depreciated over their useful life, spreading their cost across multiple years on your income statement.

Current assets fuel your daily cash flow, while fixed assets provide the foundation your business runs on.

How are fixed assets depreciated?

Depreciation is how you spread the cost of a fixed asset across the years you use it. Rather than recording the full expense when you buy the asset, you recognize a portion of the cost each year. This gives a more accurate picture of your expenses and profits over time.

The most common approach is the straight-line method. It divides the cost evenly across the asset's useful life using this formula:

(Cost - Salvage value) / Useful life = Annual depreciation

For example, if you buy a delivery van for $30,000, expect to use it for 5 years, and estimate you'll sell it for $5,000 at the end, your annual depreciation is ($30,000 - $5,000) / 5 = $5,000 per year.

Other methods include the declining balance method, which front-loads more depreciation in the early years, and the units of production method, which bases depreciation on actual usage rather than time. Your accountant can help you choose the right method for each asset.

One important exception: land doesn't depreciate. Because land doesn't wear out or become obsolete, its value stays on your books at the original purchase price.

The fixed asset lifecycle

Every fixed asset goes through a predictable series of stages, from the moment you buy it to the day you dispose of it. Knowing these stages helps you plan your finances and stay organized.

Acquisition

When you purchase a fixed asset, you capitalize the cost. That means recording it as an asset on your balance sheet rather than as an immediate expense. The capitalized cost includes the purchase price plus any costs to get the asset ready for use, such as delivery fees, installation, or setup.

Depreciation

Once the asset is in service, you begin depreciating it. Each accounting period, you record a depreciation expense on your income statement and increase the accumulated depreciation on your balance sheet. This gradually reduces the asset's book value over its useful life.

Maintenance and repairs

Keeping your assets in good working condition extends their useful life and protects your investment. Routine maintenance costs, like oil changes on a vehicle or software updates on a server, are typically expensed as they occur. Major improvements that extend the asset's life or increase its value may be capitalized instead.

Disposal

When a fixed asset reaches the end of its useful life, you dispose of it. You might sell it, donate it, trade it in, or write it off. At disposal, you remove the asset and its accumulated depreciation from your books and record any gain or loss on the sale.

How to calculate net fixed assets

Net fixed assets tell you the current book value of everything your business owns after accounting for wear and tear. The formula is straightforward.

Gross fixed assets - Accumulated depreciation = Net fixed assets

Gross fixed assets are the total original cost of all your fixed assets. Accumulated depreciation is the total depreciation you've recorded against those assets over time. The difference gives you the net value that remains on your balance sheet.

This number matters for several reasons. Lenders look at net fixed assets when evaluating loan applications because they represent collateral. Investors and buyers use it to gauge the condition and value of your business. And for you, a declining net fixed assets figure can signal that it's time to invest in new equipment before aging assets slow your operations down.

Why fixed assets matter for your business

Fixed assets aren't just items sitting in your office or warehouse. They play a direct role in how your business earns money, reports its finances, and plans for the future.

• Revenue generation: your equipment, vehicles, and technology are the tools that produce goods and deliver services to customers.
• Financial reporting: fixed assets make up a significant portion of your balance sheet. Accurate records give you a clear picture of your business's worth.
• Loan collateral: banks and lenders often require collateral when you apply for financing. Fixed assets like real estate and equipment can serve as security for a loan.
• Tax benefits: depreciation deductions reduce your taxable income each year, lowering what you owe. This is one of the most practical advantages of owning fixed assets.

Tips for tracking and managing fixed assets

Good fixed asset management starts with keeping organized, accurate records. Here are a few practical tips to stay on top of your assets.

• Create a fixed asset register: list every asset with its purchase date, cost, location, useful life, depreciation method, and current book value. This is your single source of truth.
• Conduct regular audits: at least once a year, verify that every asset on your register physically exists and is in the condition your records describe. This catches missing, damaged, or disposed items.
• Use accounting software: cloud accounting tools automate depreciation calculations, generate reports, and keep your balance sheet up to date without manual spreadsheet work.
• Set capitalization thresholds: decide on a minimum dollar amount for capitalizing purchases as fixed assets. Smaller items, like a $50 keyboard, can be expensed immediately.
• Plan for replacements: review asset ages and conditions regularly so you can budget for upgrades before critical equipment fails.

Manage your fixed assets with Xero

Keeping track of fixed assets doesn't have to be complicated. Xero's cloud accounting software brings your finances together in one place, so you can record asset purchases, track depreciation, and generate balance sheet reports without juggling spreadsheets.

With real-time reporting and customizable dashboards, you can see the current value of your assets at a glance and make confident decisions about repairs, replacements, and investments. Get one month free.

FAQs on fixed assets

Here are answers to frequently asked questions about fixed assets.

Is inventory a fixed asset?

No. Inventory is a current asset because you intend to sell it within the normal course of business, usually within 1 year. Fixed assets are items you use in operations, not items you sell to customers.

What's the difference between tangible and intangible assets?

Tangible assets are physical items you can touch, like machinery, vehicles, and buildings. Intangible assets lack physical form and include things like patents, trademarks, and copyrights. Both can be long-term assets, but they're recorded and depreciated (or amortized, in the case of intangibles) differently.

Is a car a fixed asset?

Yes, if your business owns the car and uses it for operations. A company vehicle used for deliveries, client visits, or employee travel qualifies as a fixed asset. It gets depreciated over its useful life like any other piece of equipment.

How do you record a fixed asset purchase?

You record the full cost of the asset, including the purchase price and any setup or delivery fees, as a debit to your fixed asset account on the balance sheet. You then credit cash or accounts payable. From there, you begin depreciating the asset over its useful life.

What is a fixed asset turnover ratio?

The fixed asset turnover ratio measures how efficiently your business uses its fixed assets to generate revenue. Divide your net revenue by your net fixed assets to calculate it. A higher ratio suggests you're getting more sales out of every dollar invested in long-term assets.