What is fixed asset?
A fixed asset is a long-term tangible asset that a business uses to generate income or value over an extended period of time. These assets are not meant to be sold or consumed, but rather used to generate revenues through the production of goods and services. Common examples of fixed assets include buildings, machinery, equipment, furniture, computers, software, vehicles, and certain intangible assets such as patents and copyrights.
Importance of Fixed Asset
Fixed assets are a critical component of any business organization. From office buildings to computers, fixed assets enable businesses to expand their operations, increase production, and launch new products or services. They play a vital role in the growth of organizations by allowing them to manage cash flow and maximize profits. Fixed assets also provide additional financial security because they can often be used as collateral if the need should arise.
Difference between current asset and fixed asset
A current asset is any asset that can be converted into cash within 12 months, while a fixed asset is an asset with a life of more than one year. Current assets are generally more liquid than fixed assets and are used to pay everyday expenses and other short-term obligations.
Examples of current assets include cash, accounts receivable, prepaid expenses and inventory. Fixed assets typically require significant capital investments and can include items such as buildings, furniture, equipment, vehicles and intangible assets such as trademarks or patents.