What are fixed assets, and why do they matter for your business?
-
Key takeaways
Fixed assets are long-term physical or intangible assets a business uses in its operations, like equipment, property, or vehicles.
Unlike current assets, fixed assets aren’t intended to be converted to cash within a year.
Fixed assets typically depreciate over time, and this depreciation appears on financial statements.
For businesses that import equipment internationally, the exchange rate at purchase becomes part of the asset’s recorded cost.
Keeping a fixed asset log with purchase details helps with both depreciation tracking and eventual resale or replacement decisions.
Fixed assets are long-term physical or intangible assets used in a business, equipment, property, vehicles. Here’s how they appear on a balance sheet compared to an income statement(opens in new window) and why they matter.
What are fixed assets?
Fixed assets are assets a business owns and uses in its operations over a long period, generally more than a year, rather than assets intended for quick resale or conversion to cash. Common examples include equipment, machinery, vehicles, and property. Fixed assets typically depreciate over time, meaning their recorded value decreases predictably as they age or wear.
Why fixed assets matter for your business finances
Fixed assets represent a significant, often substantial, category on a business’s balance sheet, and understanding how they’re valued and tracked matters for a few reasons:
They typically require significant upfront investment, which affects cash flow planning.
They depreciate over time, which affects both the balance sheet value and, in some tax systems, deductible expenses.
They’re harder to convert to cash quickly than current assets, which matters if the business needs liquidity.
Record-keeping tip
Keep a fixed asset log listing each significant asset, its purchase date, original cost, and, for internationally purchased equipment, the currency and exchange rate used at the time of purchase. This log supports accurate depreciation calculations and gives a clear record if the asset ever needs to be sold, insured, or claimed as a loss.
Fixed assets and international business payments
For immigrant small business owners with assets in multiple countries, or those who import equipment from abroad, understanding how fixed assets are valued and reported takes on an added dimension. Purchasing equipment internationally means the recorded cost of that asset should reflect what was actually paid, converted at the exchange rate applicable on the transaction date, using clear invoicing and accounting tools(opens in new window) to keep this documented accurately from the start.
This matters for depreciation calculations, since depreciation is based on the asset’s recorded cost, and it matters for tax purposes, since an inaccurate cost basis can affect deductions or gains if the asset is later sold. Keeping the purchase details on record at the time of the transaction, rather than reconstructing them later, avoids errors down the line.
How fixed assets are recorded and depreciated over time
A fixed asset is generally recorded on the balance sheet at its original purchase cost, then gradually reduced through depreciation over its useful life, reflecting the reality that equipment and property wear down or become outdated over time even though they’re not immediately resold.
Fixed assets located outside the U.S.
A business owning fixed assets, equipment or property, in another country as part of cross-border operations needs to track their value in both the local currency and U.S. dollars, and understand whether any specific cross-border reporting requirement applies, adding a layer of complexity beyond tracking a purely domestic fixed asset.
Why selling a fixed asset can trigger a taxable gain
Selling a fixed asset for more than its current depreciated value on the books generally makes the difference a taxable gain, a detail that surprises some business owners who assume selling old equipment is simply a cash transaction without any separate tax consequence.
Maintenance costs versus improvement costs
Routine maintenance keeping a fixed asset in its current working condition is generally expensed immediately, while a significant improvement that extends the asset’s useful life or increases its value is generally capitalized and depreciated instead, a distinction that affects how and when the cost shows up on financial statements.
Leasing versus buying a fixed asset
Choosing to lease rather than purchase a fixed asset outright avoids a large upfront cost and can offer more flexibility to upgrade later, though leasing often costs more over the asset’s full useful life compared with buying, a tradeoff worth calculating specifically for the situation rather than defaulting to whichever option requires less cash upfront.
Practical habits worth building around fixed assets
Keeping a simple fixed asset register, listing each asset, its purchase date, and its depreciation schedule, makes year-end tax preparation considerably more straightforward. Photographing significant fixed assets and storing the images alongside purchase records can also support an insurance claim if one is ever needed, and reviewing the fixed asset list against insurance coverage annually helps confirm nothing significant has been added without a corresponding update to the policy.
Common questions about fixed assets
-
What’s the difference between a fixed asset and a current asset?
A current asset, like cash or inventory, is expected to be converted to cash or used up within about a year. A fixed asset, like equipment or property, is held and used over a longer period and isn’t intended for quick resale. Both appear on the balance sheet, but they’re categorized separately.
-
Do fixed assets lose value over time?
Most tangible fixed assets, like equipment and vehicles, depreciate, meaning their recorded value decreases over their useful life according to an accounting or tax depreciation method. Land is a notable exception, as it’s generally not depreciated. Property including a building may have the building portion depreciated separately from the land.
-
How do I record the cost of equipment purchased from an international supplier?
The cost should be recorded in the reporting currency, based on the exchange rate applicable on the date of the transaction, along with the original foreign-currency amount for the records. This gives an accurate cost basis for depreciation and any future tax reporting related to the asset.
In Summary
Fixed assets are the equipment, property, and long-term resources that keep a business running, and tracking their cost and depreciation accurately matters for both financial reporting and tax purposes. For businesses that purchase equipment internationally, recording the exchange rate at the time of purchase alongside the standard cost details keeps this tracking accurate from day one.
This publication is provided for general information purposes only and is not intended to cover all aspects of the topics discussed herein. This publication is not a substitute for seeking advice from an applicable specialist or professional. The content in this publication does not constitute legal, tax, or other professional advice from Remitly or any of its affiliates and should not be relied upon as such. While we strive to keep our posts up to date and accurate, we cannot represent, warrant, or otherwise guarantee that the content is accurate, complete, or up to date.