Proper Classification of Fixed Assets in Financial Statements

How are assets classified in financial statements?

Assets refer to the resources that own by an entity such as cash, inventories, chairs, tables, cars, buildings, machinery, land, etc. These assets could be used to generate future economic flow to the entity.

Entity reports assets in their financial statements specified in the balance sheet by classified into two main classifications based on their convertibility into cash and usage.

The two main classifications of fixed assets are current assets and non-current assets. Current assets are not depreciated and non-current assets are depreciated over their useful life.

For example, assets are classified as current assets if used in operation twelve months from the operating date. They are helping for trading with twelve months like trading inventories, for example.

Assets are classified as fixed assets when those assets meet the following criteria:

  • Held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and
  • Are expected to be used during more than one period.

Fixed Assets Classification:

Entity reports fixed assets in the balance sheet; normally, assets are classified into different classifications based on types of assets and their usage.

The following is the list of general categories of fixed assets:

  1. Buildings: These include office buildings, warehouses, and others similar kind of. Their useful life is normally longer compared to other fixed assets.
  2. Computer equipment: These items include laptops, desktops, servers, printers, and other similar equipment. Useful life is around three to five years depending on the type of equipment.
  3. Computer software: These are the software that an entity purchases or business processing or could be the software that an entity builds by its own team.
  4. Furniture and fixtures: These are tables, chairs, closets, cabinets, and similar others.
  5. Intangible assets: These are a franchise, copyright, trademark, and sometimes software also included here.
  6. Land: Land is classed separately from building and land improvement. Land could not be depreciated.
  7. Leasehold improvements are mainly related to the decoration or interior expenses incurred by the entity on the leased office or building.
  8. Machinery: These are the list of machines example cutting machines
  9. Vehicles: These are cars, trucks, and other related vehicles.
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