A Simple Starter for New and Small Business
Physical entities having some value fall under the umbrella term called fixed assets. They can survive more than one year to facilitate a business. Computer equipment, tools, and vehicles are some examples of fixed assets. Fixed assets aid in heaping money, clearing bills in financially tough times and attracting loans for business.
The article covers the following topics:
- Fixed Assets
- Net Fixed Assets
Fixed assets are tangible assets that can survive more than a year and are purchased and exploited with a specialized aim to run a business. They can also be termed as capital assets.
Various types of assets are there and all of them have one thing in common: they financially amplify the value of a business.
Computers, cellphones, vehicles, tools and equipment those fixed assets that are applicable to all small businesses.
For instance, a dog-walking-business owner gets a vehicle to move his customers’ dogs to a garden. He buys a cellphone to stay connected with his customers and check reviews when walking on the road. He invoices his customers, manages some marketing duties, and deals with customers’ emails with the help of his laptop. After some time, he decides to widen his business and purchases a building to operate an accommodation and mentoring facility.
Some industries require a higher number of fixed assets than others for preparing items and rendering services. Fishing, farming, transportation, and farming are some of them.
Fixed assets are valuable specifically for three reasons:
- They are massive sources of making money. We use our laptops for marketing and generating more money and business.
- They are saleable. If our customer fades away for anyone reason, we can sell our fixed assets in order to keep our business running.
- They can help us in getting business loans. They can guarantee repayment in case we don’t have money to pay back the lenders.
Net Fixed Assets
The whole fixed assets that we get after subtracting any deficiency on our fixed assets and any debt, according to Accounting Tools. It does mean, we are accountable for any deficiency in the worth of our fixed assets.
- For instance, the van we exploit for business shrinks in value with time.
And we are responsible for any liabilities such as loans we owe to the lender.
- For instance, we take out a loan for purchasing a van for our transport business.
Net fixed assets help in figuring out the value of our total fixed assets and any pending liability on them.
- For instance, a developing company has $4000 in its fixed assets but after accounting for depreciation and liabilities on its fixed assets, it ends up with a debt of $75.
On the flips side, gross fixed assets are taken as fixed assets before considering any depreciation and debt.
List of Fixed Assets
- Computer hardware and software
- Fixtures (sinks, plumbing fitting, lighting)
- Office equipment
- Parking lot
Fixed Assets on Balanced Sheet
These assets are normally categorized as property, plant, equipment on a balance sheet, as claimed by Dummies.
A sample of a balance sheet has been given below:
We subtract accumulated depreciation expense from fixed assets to get the line item: cost less depreciation. This is called net fixed assets. And cost less depreciation provides business owners with a true picture of his/her assets and even the pending debt on fixed assets
The formula for Fixed Assets?
We use the formula for accounting net fixed asset formula, as stated by My Accounting Course.
Net fixed assets formula is as follows:
Total fixed assets minus accumulated depreciation are equal to net fixed assets.
The formula can be refined to get more precise results:
(Total Fixed Asset Purchase price plus Improvements) minus (Accumulated Depreciation plus Fixed Asset Liabilities) equal to Net Fixed Assets
Improvements incorporate any betterment we apply to an asset.