Where Are Fixed Assets on a Balance Sheet?

Company financial statements provide an overview of economic activities. The balance sheet serves as a snapshot of a company’s financial health at a specific point in time. It details what a company owns, owes, and the residual value belonging to its owners. Understanding the balance sheet is fundamental for insight into a business’s financial position.

The Balance Sheet Structure

The balance sheet is built upon the fundamental accounting equation: Assets = Liabilities + Equity. This equation illustrates that a company’s resources (assets) are financed either by borrowing from others (liabilities) or by investments from its owners (equity). The balance sheet organizes these components into distinct sections.

Assets are listed in order of their liquidity, meaning how quickly they can be converted into cash. They are categorized into current assets, expected to be converted to cash or used within one year, and non-current (or long-term) assets, with a useful life extending beyond one year. Liabilities are similarly divided into current liabilities, due within one year, and non-current liabilities, due beyond one year.

What Are Fixed Assets

Fixed assets, also known as property, plant, and equipment (PP&E), are tangible items a company owns and uses in its operations to generate income over an extended period. They are not intended for sale in the ordinary course of business, but are acquired to support the company’s long-term activities.

Fixed assets are long-term in nature, providing benefits for more than one year. Common examples include land, buildings, machinery, vehicles, and office equipment. While most fixed assets decline in value over time due to wear and tear or obsolescence, land is an exception and is not depreciated.

Finding Fixed Assets on the Balance Sheet

Fixed assets are presented within the “Assets” section of the balance sheet, under the “Non-Current Assets” or “Long-Term Assets” sub-category. This classification reflects their intended use over multiple accounting periods rather than immediate conversion to cash. They are grouped together because of their shared long-term utility.

Line items for fixed assets on a balance sheet include “Property, Plant & Equipment, Net” or separate listings such as “Land,” “Buildings,” and “Machinery and Equipment.” The term “Net” indicates that accumulated depreciation has been subtracted from the original cost. This presentation allows stakeholders to understand the composition of a company’s long-term operational resources.

Understanding Fixed Asset Valuation and Depreciation

Fixed assets are initially recorded on the balance sheet at their historical cost, which includes the purchase price plus any expenses necessary to get the asset ready for its intended use, such as transportation or installation. This initial cost serves as the basis for their accounting treatment.

Over time, most fixed assets, excluding land, lose value due to use, age, or becoming outdated. This reduction in value is systematically allocated over the asset’s useful life through a process called depreciation. Depreciation is recognized as an expense on the income statement, and the cumulative amount is recorded as “accumulated depreciation” on the balance sheet.

The value of fixed assets shown on the balance sheet is their “book value” or “net book value,” calculated as the historical cost minus accumulated depreciation. This net figure provides a more accurate representation of the asset’s remaining value to the company. The periodic reduction through depreciation ensures that the asset’s cost is matched against the revenues it helps generate over its operational life.