Where Is Fixed Assets on a Balance Sheet?

A balance sheet provides a snapshot of a company’s financial position at a specific moment in time. This important financial statement outlines what a company owns, what it owes, and the ownership stake of its shareholders. The fundamental accounting equation, Assets = Liabilities + Equity, forms the foundation of the balance sheet, illustrating how a company’s resources are financed. Assets represent the economic resources controlled by the business, expected to provide future economic benefits. Among these assets, fixed assets represent a significant category, signifying long-term investments that support ongoing operations.

Understanding Fixed Assets

Fixed assets are tangible items a business owns and uses to generate income, not intending to sell them in the near future. These assets are characterized by their long-term nature, meaning they are expected to provide benefits for more than one year. Common examples of fixed assets include land, buildings, machinery, office equipment, company vehicles, and furniture.

Locating Fixed Assets on the Balance Sheet

Fixed assets are presented within the “Assets” section of the balance sheet. To distinguish them from resources that are quickly converted to cash or used up, fixed assets are specifically classified under “Non-Current Assets” or “Long-Term Assets.” This classification highlights their intended use over an extended period, typically exceeding one year. Conversely, “Current Assets,” such as cash, accounts receivable, and inventory, are expected to be utilized or converted into cash within one year.

The balance sheet typically organizes assets in order of liquidity, with the most liquid assets listed first. Therefore, non-current assets, including fixed assets, appear after current assets. Within the non-current asset section, fixed assets are often grouped under a line item such as “Property, Plant, and Equipment” (PP&E) or simply “Fixed Assets.” This hierarchical structure clearly separates long-term operational investments from short-term financial resources.

Valuation and Reporting of Fixed Assets

Fixed assets are typically recorded on the balance sheet at their “cost basis.” This cost includes the original purchase price of the asset plus any additional expenditures necessary to get the asset ready for its intended use, such as transportation, installation, and testing costs. For instance, if a piece of machinery costs $100,000 and an additional $5,000 is spent on installation, its cost basis for accounting purposes would be $105,000.

Over time, most fixed assets, with the exception of land, experience wear and tear, obsolescence, or consumption of their economic benefits. To account for this, businesses systematically allocate the cost of the asset over its useful life through a process called depreciation. Depreciation reflects the gradual expense of using the asset to generate revenue, aligning the cost of the asset with the revenues it helps produce, a concept known as the matching principle. This accounting adjustment does not represent a cash outflow but rather an allocation of the initial cost.

On the balance sheet, fixed assets are reported at their “net book value” or “carrying amount.” This value is calculated by subtracting the accumulated depreciation from the asset’s original cost basis. For example, if the $105,000 machinery has accumulated $20,000 in depreciation over several years, its net book value on the balance sheet would be $85,000.