What’s the Difference Between Assets and Fixed Assets?
What’s the Difference Between Assets and Fixed Assets?
Whether you’re new to inventory management or a seasoned pro, categorizing assets can be a bit confusing. This article will clearly explain fixed assets vs. current assets and review the different types of fixed assets. We’ll also touch on the benefits of asset management—and explain how to simplify your company’s asset tracking strategy.
What is an asset?
An asset, also known as a current asset, is something your business owns that has value but is considered a short-term investment. In other words, a current asset is liquid and could be cashed out in a year or less.
The best example of a current asset? Cash. And often, current assets are “intangibles.” But anything else in your business’s inventory that you expect to liquidate within 12 months meets the criteria, too.
Your inventory is also considered an asset, assuming it can be quickly bought and sold. Other common examples of assets are your business’s prepaid expenses, accounts receivable, prepaid liabilities, marketable securities, and cash equivalents.
Want to learn more about asset tracking? Our asset tracking guide has everything you need to know to get you started.
What’s a fixed asset?
A fixed asset is something tangible—like equipment or real estate—that is an income-generating asset that a business owns. Fixed assets are typically long-term investments. Companies plan to hold onto these assets for a while. At the very least, they won’t be liquidated for at least one year.
Types of fixed assets
Fixed assets tend to be property and equipment but can be a variety of different things, including:
Cars, trucks, or other company vehicles
Machinery and other equipment
Buildings, like a factory, office building, or warehouse
What are fixed assets in accounting?
In accounting terms, tangible fixed assets are depreciating assets. That means that the value of the asset dwindles over time. For example, depreciating assets include buildings, equipment, machinery, and office furniture.
Note that land is not considered a depreciating asset, although there are some exceptions concerning natural resources.
Wondering what accounts are fixed assets? As far as your accountant (and the IRS) is considered, fixed assets should be:
Last for longer than one year
Generate income for your business
What is an inventory asset?
While inventory that’s going to be sold, used, or liquidated within a year is considered a current asset, some of your inventory may also be an inventory asset. Think: electronics, art, and anything else your business needs to track that also meets the criteria for a fixed asset.
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The difference between fixed assets and other types of assets? Time. Current assets are short-term assets; they’re consumed, sold, or liquidated within a year. But current assets help a business run daily operations and are long-term investments that are useful and generate income for longer than twelve months.
Most businesses rely on a mix of fixed and current assets to run smoothly. For example, consider an auto shop. Those car lifts, the computers in the back office, and the auto shop itself are all fixed assets. They’re all used to help the auto shop conduct business, and all these investments are long-term, useful assets that won’t be cashed out for at least one year.
But the auto shop also carries a ton of inventory, from windshield wiper fluid to brake pads. And that inventory is a current asset: it’s meant to be sold or consumed quickly—in less than a year, to be exact.
The benefits of asset tracking software
Chances are your business has assets—both fixed and current—that it needs to track day in and day out. But if you’ve got more than a couple dozen assets on your ledger, tracking them by hand can be inefficient, stressful, and error-prone.
But asset management software—widely agreed upon as the smartest, most efficient asset tracking solution—can save your business tons of time, money, and stress. Here are four benefits to getting your assets organized:
1. Easier accounting
Getting your fixed and current assets straight isn’t just helpful to the employees who use equipment and inventory day in and day out. Your accounting department or business manager also needs information about your assets.
When it’s time for your account to file your business’s taxes, they’ll need to know the value of all your assets, both current and fixed. And they’ll also need to know details about your depreciating assets—the equipment, furniture, buildings, and so on that have lost value as they’ve aged.
Using an inventory app like Sortly to manage your assets is easy. Every item you inventory can be assigned a purchase price and current value. You can also track condition, location, and any other details that matter to you and your financial advisors. For example, some businesses even create a tag called “depreciating assets” so they can quickly run reports on the current value during tax season.
2. Improved corporate compliance
Suppose a large corporation owns your business, or you run a branch that’s part of a larger organization. In that case, chances are your parent company requires documentation about your assets and liabilities. Fortunately, modern inventory management software can store all this information for you.
In fact, the same inventory app that maintains all the details about your assets can also be used to generate data-rich, easy-to-read reports about your short and long-term investments.
Chances are, your company has invested in some big-ticket fixed assets. Whether you’re in construction, healthcare, or party planning, your equipment, machinery, and other long-term investments can cost tens of thousands of dollars—or more.
Tracking these high-value items can be challenging, especially if expensive assets change hands or move locations frequently. Fortunately, the best asset tracking systems can help you keep an eye on inventory, so you’ll always know where it is and who had it last.
4. Less stress and fewer wasted resources
Finally, implementing an effective asset management system can help your business operate more smoothly. Your team members will spend less time tracking down inventory, while your accountants won’t need to spend all day searching for receipts.
Less stress and fewer wasted resources yield more time to focus on other aspects of your business, like marketing, sales, and growth.
Sortly is a top-rated asset tracking app that helps businesses of every shape and size organize both their current and fixed assets. Sortly can help your business visualize all your investments, from high-turnover inventory to top-dollar fixed assets, even if those assets are spread across multiple locations.
What’s more, Sortly offers a ton of powerful, time-saving features that can help your business run more smoothly than ever before. From barcode and QR code scanning to custom alerts and notifications, it’s easy to check items in and out or get reminded when an item is set to expire, fall out of warranty, or fall below a custom-set threshold.
Best of all, Sortly is completely customizable and designed for collaborative teams. That means that all your employees can use the app, although you can control exactly what each user can use, see, and do.
Ready to get your assets organized? Get started with a trial of Sortly, absolutely free for two weeks.
Lauren writes about inventory for Sortly. Her favorite thing to organize? Her comically large collection of stuffed animals.