The Definition of Fixed Assets
Any tangible item not consumed within one accounting cycle (typically a year) and providing long term utility is referred to as a Fixed Asset. Traditional images include manufacturing equipment, tools, transportation vehicles, buildings and utility related systems (sewage systems, power grids, power plants and dams). In accounting, these assets are recorded to the balance sheet as ‘Fixed Assets’. For very large corporations the line item is referred to as ‘Buildings and Equipment’ or some other generic term identifying capital expenditures for high dollar cost items.
Classification as a fixed asset requires the item pass two tests. The first test is tangible in nature. This means it must have physical characteristics. Such items as patents or research and testing do not pass the test due to a lack of physical existence. In accounting terminology, these are referred to as intangibles and are recorded in a different class of assets. Examples of tangible items include tools, site development costs (pavement, curbing, light poles, even trees), structures and trucks.
The second test is the utility period. This is more commonly referred to as