What is a fixed asset and how do you record it in your accounts?
Do you manage your company's accounts and need to know what a fixed asset is?
Among accounting entries, fixed assets have specific characteristics that you need to know in order to record them accurately in your accounts.
To understand these lines on your balance sheet, learn to distinguish between tangible and intangible fixed assets, not forgetting financial fixed assets, and find out how to account for them.
Definition: fixed assets
What are fixed assets in accounting?
A fixed asset is a long-term asset, i.e. one held by a company for longer than one accounting period.
In practical terms, as soon as a company is set up, it incurs expenses to acquire the assets that make up its net worth. These assets are referred to as " fixed assets " when they are intended to be used by the company and to create value over the long term.
Fixed assets are found at the top of the balance sheet, in the "Assets" section.
The different types of fixed assets
Intangible fixed assets
Intangible fixed assets are non-material assets. They represent a positive economic value for the company holding them, which can use them for its own business or on behalf of another.
▶︎ Examples of intangible assets include
- business goodwill,
- patents
- software,
- brands,
- websites,
- research & development costs, etc.
Property, plant and equipment
Tangible fixed assets are physical, and therefore tangible, assets. They are intended for long-term use by the company: either for the production necessary to its activity, or for the supply of goods or services, or for rental to third parties.
▶︎ Examples of tangible fixed assets include
- computer equipment,
- vehicles,
- industrial equipment and machinery,
- furniture,
- land,
- buildings,
- premises, etc.
Financial fixed assets
Fixed assets are monetary assets that are intended to remain with the company over the long term.
▶︎ Examples of long-term investments include
- shares in other companies,
- shares,
- guarantees,
- loans granted to third parties, etc.
Accounting for a fixed asset
Fixed asset or expense: what's the difference?
First and foremost, it's important to distinguish between a fixed asset and an expense, because the way in which they are accounted for has an impact on the profit or loss for the year.
Fixed assets contribute directly to the value of a company's assets, and are intended to generate value beyond the duration of an accounting period.
Expenses, on the other hand, do not add value to the company's assets. Unlike fixed assets, they are used on a short-term basis: they are consumed by the company's operations during the financial year.
Recognizing expenses to be capitalized
To determine whether your expenses should be recorded as fixed assets, make sure they meet the following criteria:
- their identifiability: all fixed assets must be identifiable assets;
- their value: for an asset to be recognized as a fixed asset, check that it has a positive economic value;
- their durability: ask yourself whether the asset is destined to remain with the company and provide future economic benefits. The asset should generate value over several accounting periods, and not be intended for short-term use or resale;
- the amount: as a fixed asset is a substantial investment for which a certain ROI is expected, relatively small amounts should not be recognized as assets. Although the French General Chart of Accounts (PCG) does not specify a minimum amount for a fixed asset, in practice, their acquisition value is generally in excess of 500 euros. If they are lower, they can be expensed.
ℹ️ What about depreciation?
Whether tangible or intangible assets, their value diminishes as they are used. To record this gradual loss of value, fixed assets (except financial fixed assets) can be depreciated over several accounting years.
To do this, they must be shown on the balance sheet in the following columns:
- the gross amount,
- the amount of accumulated depreciation,
- net amount.