What is a Fixed Asset?

A fixed asset is an item which a business purchases and uses to generate its income.

Unlike an asset like stock which you may buy to sell onto customers, a fixed asset is an overhead which you buy to run your business.  A fixed asset however is not classified as an overhead because it will last for more than one year.

Examples of Fixed Assets

  • Computers & Laptops;
  • Office furniture;
  • Equipment and machinery which the business purchases to generate its income;
  • Buildings;
  • Vehicles;
  • Office improvements.

Scenario 1

A business takes on a new employee which means they need to buy a new laptop.  The laptop will last more than one year so is classified as a fixed asset.

Scenario 2 

A photographer is setting up a new business and needs to buy new camera and lighting equipment which are required to generate income, therefore the new equipment will be classified as fixed assets

Scenario 3

A distribution business has purchased from a supplier 10,000 units of stock and storage for the new stock to be installed in its warehouse.  The 10,000 units of stock are not a fixed asset since they will be sold onto customer however the new storage and will be a fixed asset because the business will use this for years to come.

Fixed Assets and Financial Statements

Fixed assets are shown on your balance sheet often as a single line along with a corresponding fixed asset note in the accounts to add more detail. Here is an example of each:

Example balance sheet
Example Balance Sheet
example fixed asset note
Example Fixed Asset Note 

What can be included in the cost of a fixed asset?

The costs that can be included in the cost of a fixed asset includes all the amounts paid to get the asset installed and usable such as:

  • purchase price;
  • Delivery costs;
  • Installations;
  • Guarantees.

In Scenario 3 above if the business paid installation costs for the storage units then the cost of the fixed asset would be the amount paid for the storage plus those installation costs.

Anita is a Chartered Accountant, turned blogger and creator of the ever popular free Go Self Employed Email Mini Course, which has been completed by hundreds of attendees all over the UK. Using her 10 years experience in accounting, tax and operations for Small Businesses, Anita is on a mission to make finance simple for the self employed, so they can stop stressing about tax & finances and focus on building profitable businesses which will give them the lifestyle they dream of.