What Are Fixed Assets? - Definition & Examples

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  • 0:01 Assets in Business
  • 1:28 Asset Example
  • 2:50 Qualities of Fixed Assets
  • 3:29 Variances in Fixed Assets
  • 4:12 Lesson Summary
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Lesson Transcript
Instructor: Tara Schofield
A company may own different kinds of resources, among which are fixed assets. This lesson explains what fixed assets are, provides examples, and notes the importance of a business' industry in determining fixed assets.

Assets in Business

Owning and running a business is by no means easy. Not only does it require long hours, heavy responsibility, and a lot of hope, but owning your own business also comes with more costs than you can imagine. With a little bit of time, however, many businesses are able to grow to the point of stability and profit. After early years of nothing but debt and hard work, the moment that a business owner discovers they are making money can be absolutely momentous. Profits may outweigh costs and, with luck, assets can outnumber debts.

There are a number of different kinds of assets. All assets can be divided into two major categories: intangible and tangible assets. Intangible assets are resources belonging to a company that have no physical form, such as a firm's reputation or copyrights. Tangible assets are resources belonging to a company that do have a physical form; these can be sub-divided into current assets and fixed assets--the focus of this lesson.

Current assets include rotating physical goods, such as supplies and inventory. Fixed assets are tangible items a business owns that are held on a long-term basis. These items are often large, may be expensive, and are not easily sold or turned into cash. They are items that have value but are not sold regularly as part of doing business.

Asset Example

Imagine, for instance, that you are a baker. Your business was launched in a little shop you rented, where you sold donuts and cupcakes. You, luckily, are an excellent baker. Your reputation grew and people flocked to your shop for your delicious baked goods. In fact, sales were so good that it wasn't long before demand for your goods required that you move into a larger space.

Rather than rent a larger space, you decided it was time to buy a piece of commercial real estate. As part of the move into your new bakery, you bought a couple of large ovens, refrigerators, and other pieces of baking equipment. In the new building, you had room to store more flour, sugar, eggs, and other baking supplies.

Your business, because of your success, has a lot of assets. The profits in the bank, your storeroom of baking goods, and even the case of donuts and cupcakes are all assets. You also have fixed assets; can you guess what would qualify as a fixed asset?

If you answered your new shop, you're absolutely right! Not only your building space but also the ovens, the refrigerators, and all the larger pieces of baking equipment qualify as fixed assets. The other items, such as the flour, sugar, and eggs, are purchased and sold as part of your regular business sales; those items are not considered fixed assets.

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