Proper Classification of Fixed Assets in Financial Statements

How are assets classify 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 by classified into two main classifications based on their convertibility into cash and usages. 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, and normally assets are classified into different classifications based on types of assets and their usages.

The following are the list general categories of fixed assets:

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