What is a fixed asset & how does it work?

Due to the nature of fixed assets being used in the company’s operations to generate revenue, the fixed asset is initially capitalized on the balance sheet and then gradually depreciated over its useful life. A fixed asset shows up as property, plant, and equipment (a non-current asset) on a company’s balance sheet.

What happens to fixed assets at the end of a lifecycle?

At the end of their lifecycle, fixed assets are often converted into cash. When a business acquires a fixed asset, it is recorded on the balance sheet - usually as property, plant and equipment (PP&E). Fixed assets are initially capitalized on a company’s balance sheet, and then periodically depreciated.

Are fixed assets incorporated into finished goods?

Nor are fixed assets incorporated into finished goods, like raw material assets would be. For example, lumber cannot be a fixed asset for the construction company, since it ultimately becomes part of the completed building. By their nature, fixed assets are beneficial for more than one fiscal cycle, often for many years.

What is a fixed asset limit?

For instance, a company may set their fixed asset limit for computers at $5,000. A $2,500 computer will not become a fixed asset. The cost will be expensed on the income statement. A $5,000 computer will become a fixed asset.