What is a fixed asset and how do you record it in your accounts?
Do you manage your company's accounts and want to know the definition of a fixed asset?
Among accounting entries, fixed assets have specific characteristics that need to be understood 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. an asset held by a company for more 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 assets. These assets are called " 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 may use them for its own business or on behalf of another company.
▶︎ Examples of intangible assets are
- goodwill
- patents
- software
- brands
- websites,
- research and development costs, etc.
Tangible fixed assets
Tangible fixed assets are physical, i.e. tangible, assets. They are intended for long-term use by the company: either for the production necessary for its business, or for the supply of goods or services, or for leasing to third parties.
▶︎ Examples of tangible fixed assets:
- 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 is important to distinguish between a fixed asset and an expense, because the way in which they are accounted for has an impact on the result for the financial 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 in the short term: they are consumed by the company's operations during the financial year.
Identifying expenditure to be capitalised
To determine whether your expenditure should be recognised as a fixed asset, make sure that it meets the following criteria:
- they are identifiable: all fixed assets must be identifiable assets;
- their value: for an asset to be recognised as a fixed asset, check that it has a positive economic value;
- durability: ask yourself whether the asset is intended to remain with the company and provide future economic benefits. The asset should generate value over several accounting periods and should not be intended for short-term use or resale;
- their amount: as fixed assets are similar to substantial investments for which a certain ROI is expected, relatively small amounts should not be recognised as assets. Although the General Chart of Accounts (PCG) does not specify a minimum amount for a fixed asset, in practice their acquisition value is generally more than €500. If they are lower, they can be expensed.
ℹ️ What about depreciation of fixed assets?
The value of both tangible and intangible fixed assets decreases as they are used. To record this gradual loss of value, fixed assets (except financial assets) may be depreciated over several accounting periods.
To do this, they must be entered in the balance sheet in the following columns:
- the gross amount
- the amount of accumulated depreciation
- the net amount.
Article translated from French