A fixed asset is a long-term tangible item a business owns and uses in its operations, such as equipment, vehicles, or furniture, rather than for resale.
A fixed asset is a long-term tangible item a business owns and uses in its operations - equipment, vehicles, machinery, furniture - rather than holding for resale. Because fixed assets are kept for years and lose value gradually, each one belongs on the balance sheet and in the organisation’s asset register, where its cost, location, and condition can be followed across its whole asset lifecycle.
What counts as a fixed asset
Three tests, all of which must pass:
- Tangible - you can touch it. Software licences and patents are long-term assets too, but they are classed as intangible.
- Used in operations - it helps the business do its work, rather than being merchandise. A venue’s PA system and stage lighting are fixed assets; the drinks behind the bar are stock.
- Useful life beyond one year - it will still be in service after the current accounting period.
Typical examples: computers and monitors, vehicles, power tools, manufacturing machinery, office furniture, buildings, and leasehold improvements.
Fixed assets vs current assets
Current assets are cash or expected to become cash within a year - bank balances, accounts receivable, and inventory held for sale. Fixed assets sit on the other side of that line: bought to be used, not sold, and consumed slowly over years. The same physical object can be either depending on intent. A laptop is inventory to the retailer and a fixed asset to the design agency that buys it.
A worked depreciation example
Fixed assets are not expensed at purchase; their cost is spread over their useful life. Under straight-line depreciation, a €1,200 laptop with a three-year useful life and no residual value depreciates €400 per year: book value €800 after year one, €400 after year two, €0 after year three. The laptop may keep working past that point - the book value reaching zero is an accounting event, not a death sentence - but it tells the finance team the cost has been fully absorbed and a replacement should be budgeted.
Why each fixed asset belongs on a register
A fixed asset that exists only on the balance sheet is a ghost asset waiting to happen: still being depreciated and insured long after it was lost, broken, or quietly thrown out. Listing each item in a register - with an asset tag on the object itself - means audits reconcile records against reality instead of taking the ledger’s word for it. In AMPthilly, each asset record carries the purchase price and date, supplier, warranty dates, and depreciation context alongside the day-to-day ownership history, so the finance view and the operational view describe the same item.
Common mistakes
The usual failures: recording fixed assets only in the accounting system, where nobody operational ever looks; skipping items under the capitalisation threshold entirely, so cheap-but-critical kit is invisible; and never removing disposed items, which inflates both the asset figures and the insurance premium. The fix in every case is the same habit - one register, updated when things change, checked against the physical world at least annually.
Related terms
- Asset Register - where every fixed asset should be listed
- Asset Inventory - the count that verifies fixed assets still exist
- Asset Lifecycle - the journey from acquisition to disposal
- Asset Tag - the physical label tying the item to its record
- Ghost Asset - what a fixed asset becomes when records outlive reality