Fixed Asset vs.
Current Asset: What's the
Difference?
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 (PPE) 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.
The company's inventory also belongs in this category, whether it consists of raw
materials, works in progress, or finished goods. All these are classified as current
assets because the company expects to generate cash when they are sold.
These items provide for the day-to-day funding of business operations.
Similarly, accounts receivable should bring an inflow of cash, so they qualify as
current assets.
Current assets are sometimes listed as current accounts or liquid assets.
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.
