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Simple English definitions for legal terms
fixed asset
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A quick definition of fixed asset:
Fixed Asset: A fixed asset is something a business owns that is used to make money, like a building or equipment. These things are not meant to be sold quickly or used up right away. They are usually used for a long time, like more than a year, and can be touched or seen. Fixed assets are different from things like cash or stocks, which can be easily turned into money. Each state has its own rules about what counts as a fixed asset, but things like cars or trucks can also be considered fixed assets.
A more thorough explanation:
Fixed Asset is a term used in accounting to refer to property and equipment that are used in the production and distribution of services. These assets are tangible, long-term assets that are not easily converted into cash and are often used to generate income.
Fixed assets have three primary characteristics:
- They are acquired and held for use in operations but not for sale
- They should be in long-term use (more than a year)
- They could be physically possessed
Examples of fixed assets include:
- Buildings
- Land
- Machinery and equipment
- Furniture and fixtures
These assets are not expected to be converted into cash or consumed in daily use. For example, a building is a fixed asset because it is used in the production of services and is not easily converted into cash. On the other hand, cash and securities are considered liquid assets because they can be easily converted into cash.
Each state may have its own categories of fixed assets. For instance, in Arkansas, a motor vehicle is considered a fixed asset.