Fixed assets, commonly known as real property, machinery and plant, is a general term used in financial accounting for assets and personal property that can not easily be transformed into money. This is different from assets that can be turned over to another party as security, as in accounts receivable.
Fixed assets are often referred to as personal and are usually used to describe real estate, machinery, land, buildings, personal possessions and other items of value. This is sometimes used interchangeably with the term assets, since assets are generally considered to be separate from the tangible things they are attached to.
There are many kinds of fixed assets, but the most common type is the tangible or fixed financial accounts in the business. A company’s tangible accounts include the inventory, accounts receivable, accounts payable, accounts receivable, inventories, and general ledger balances. It is important to understand that tangible financial accounts are all accounts receivable except the accounts that have been created to represent the cost of goods sold or services rendered to customers.
Financial assets do not necessarily refer to cash in a firm’s pocket. A firm may have several kinds of financial assets including its inventory, accounts receivable and accounts payable. The accounts receivable refers to the credit accounts receivable and accounts payable refers to the accounts payable.
While there are several types of fixed assets in a firm, fixed assets that are often used in financial accounting accounts receivable and accounts payable. The accounts receivable is the account for a firm’s unpaid bills.
Accounts payable is the account for a firm’s outstanding credit accounts. In financial accounting, accounts payable are the accounts for payments made to the clients and suppliers. The accounts payable includes any balance due and balances due and outstanding amounts, as well as all amounts due for the repayment of money borrowed.
For the purpose of financial accounting, the accounts receivable and accounts payable should also be included in a firm’s financial records. Other types of fixed assets are plant, fixed equipment and fixed land, but because they are not considered tangible, they are not accounted for separately.
It is important to understand that financial accounting does not include the value of any tangible asset in a firm’s financial statements because the accounting value of any asset includes any depreciation and interest that would have accrued over its lifetime. Financial accounting is also different than business management because accounting is about valuing assets in terms of market value.
Because financial statements are usually prepared on an accrual basis, assets are usually valued on the basis of their cost to purchase. It is important to understand that an asset’s value will change over time, so any assets that are depreciated over the life of the enterprise should also be included in the accounting information.
The cost to purchase capital assets is included in the firm’s financial statement. The cost of an asset is the cost of production and the difference between that cost and the fair market value at the date of purchase.
Any assets that can be used in the future for expansion or other activities are called fixed assets. Fixed assets are those that have an indefinite life span. Assets such as fixed machinery, raw material, construction tools, raw materials, and supplies, are fixed assets.
Most of the accounts receivable of a firm are also fixed assets because they are based on the purchase price of these goods. Assets that are not depreciated over the life of the enterprise are considered non-fixed assets.
The assets that are non-fixed assets are called floating assets. Assets that are not depreciated, such as accounts receivable or accounts payable, are known as non-income generating assets, or non-revolving assets. These assets are considered assets that are not used up in the firm’s books.