The Difference Between an Asset and Fixed Asset
The term asset is thrown around a lot and sometimes used interchangeably with the term fixed asset. There’s a difference between the two, however.
What's the Difference Between Fixed Assets and Current Assets?
What is a Current Asset?
Assets, commonly referred to as “current assets,” are owned by a company or organization, generate value, and are considered short-term, as they are liquid and must be able to be converted into cash in less than one year. Many current assets are intangible assets – for example, equity, certificates of deposit, and accounts receivable. However, a company’s parts and/or inventory may also qualify as current assets because they meet the conversion criteria into cash in less than one year.
Fixed Assets vs. Current Assets
While companies also use fixed assets to run the business, many consider them long-term assets; they have a “useful life,” or estimated lifespan, of more than one year. Like current assets, fixed assets carry value, generate cash flow, and are on a company’s balance sheet. Also, fixed assets are tangible company purchases, like:
- Office furniture
- Company vehicles
- IT equipment
- Office equipment
- Office space
Because fixed assets have a longer useful life than current assets, they depreciate from wear and tear. Thus, companies must record the depreciation of each fixed asset or divide the cost of each item throughout its lifespan.
Why Asset Management is Very Important
So imagine that you’ve got many fixed assets to manage within your organization. That scenario is entirely possible, even if you’re running a small business, a nonprofit, a church, a school, or almost any other type of entity. Each fixed asset you own is attached to unique data: its lease or purchase information, warranty details and expiration, maintenance history and schedule, depreciation, check-in/check-out details, location, and more.
Now imagine trying to keep all of those details up to date within a single document. Many organizations try to do just that, most often with an Excel spreadsheet. Unfortunately, that’s a difficult task because data changes frequently.
Spreadsheets are time-consuming, and managing them can cut into your productivity. Companies are busy and juggling multiple responsibilities, so tracking this information sometimes falls to the back burner, resulting in gaps in recordkeeping. Mistakes lead to frustration when employees have to spend hours trying to track down missing fixed assets. Manually keying barcode numbers into a spreadsheet opens the door for typos, especially when employees are distracted and multitasking.
Employees may resort to guesswork when reporting depreciation or determining financial reporting needs for the year ahead. They may place orders for more fixed assets than you actually need, which can put a real drain on your budget.
Fixed Asset Maintenance: An Overlooked, Yet Critical Task
Another factor to consider is asset maintenance. While you can create reminders on your calendar to jog your memory when equipment is due for updates and/or service, you’ve likely got a lot of fixed assets to manage. And because fixed assets are tangible, you must also account for depreciation.
In a 2017 blog post, Nicole Pontius of Camcode.com stated: “Most equipment requires regular maintenance for optimal performance, but too often, preventive maintenance is the first task to go when you’re short-staffed and overwhelmed.” The U.S. Department of Energy estimates that preventive maintenance can lead to:
- Up to a 30 percent reduction in energy and maintenance costs;
- 35 percent to 45 percent fewer breakdowns; and
- Reductions in downtime by up to 75 percent.
Asset Panda's Asset Management Software
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