How do tangible fixed assets work in accounting?

A tangible fixed asset is a physical item a business owns and uses in its operations for more than a year, such as land, a building, a vehicle, machinery, computers or furniture. On the balance sheet these assets are grouped as property, plant and equipment. The business records each one at its full cost, then spreads that cost over the years it uses the asset through depreciation. Land is the exception: it isn't depreciated.

Billed publishes this page. The definitions are quoted from OpenStax, Principles of Accounting, Volume 1, chapter 11 (Rice University), opened on October 30, 2026. It covers accounting records. For US tax depreciation, see what is tax depreciation, and ask your accountant which rules apply to you.

What Counts as a Tangible Fixed Asset

OpenStax's chapter 11 key terms define a tangible asset as an "asset that has physical substance" and a fixed asset as a "tangible long-term asset". OpenStax's section 11.1 sets three conditions for a long-term tangible asset: "the item needs to be used in the normal operation of the business for more than one year, not be near the end of its useful life, and the company must have no plan to sell the item in the near future."

So the same kind of item can be a fixed asset in one business and not in another. OpenStax gives the example that "the computers that Apple Inc. intends to sell are considered inventory (a short-term asset), whereas the computers Apple's employees use for day-to-day operations are long-term assets."

• Examples of tangible fixed assets: land, buildings, vehicles, machinery and tools, computers and office equipment, furniture.
• Not tangible fixed assets: inventory held for sale and supplies, which OpenStax calls short-term tangible assets; and intangible assets, which OpenStax defines as an "asset with financial value but no physical presence; examples include copyrights, patents, goodwill, and trademarks". For intangibles, see what is amortization.

For how fixed assets differ from current assets on the balance sheet, see fixed assets vs. current assets.

What Goes Into the Cost

A fixed asset is recorded at everything it took to get it ready to use, not just its price tag. OpenStax section 11.2: "When capitalizing an asset, the total cost of acquiring the asset is included in the cost of the asset. This includes additional costs beyond the purchase price, such as shipping costs, taxes, assembly, and legal fees."

Recording the asset this way is called capitalization, which OpenStax defines as the "process in which a long-term asset is recorded on the balance sheet and its allocated costs are expensed on the income statement over the asset's economic life".

Repairs or Improvements?

Spending on an asset you already own is either an expense now or an addition to the asset's cost. OpenStax uses a vehicle to show the difference: "Routine repairs such as brake pad replacements are recorded as repair and maintenance expense." But "if replacing the engine of an older car extends its useful life, that cost would also be capitalized."

Depreciation and Book Value

Depreciation is the "process of allocating the costs of a tangible asset over the asset's economic life". Each year's depreciation goes on the income statement as an expense, and the running total builds up in accumulated depreciation. OpenStax section 11.3 gives book value as "the asset's original cost less accumulated depreciation."

Land is left out. OpenStax says "land is not depreciated because depreciation is the allocating of the expense of an asset over its useful life," and "It is assumed that land has an unlimited useful life".

This page uses one straight-line year in the example below. For the depreciation methods and how to calculate them, see how to calculate depreciation. Tax depreciation in the US follows its own rules (MACRS, section 179), covered on the tax depreciation page.

Worked Example: Recording a Delivery Van (sample figures)

The business, the van and every figure here are a sample, invented for this example. It shows accounting records only, not tax.

A sample florist buys a delivery van and pays:

• Purchase price: $30,000
• Sales tax: $1,800
• Delivery to the shop: $400
• Fitting shelves in the back (assembly): $800
• Cost recorded for the van: $30,000 + $1,800 + $400 + $800 = $33,000

In the first year it also pays $350 for oil changes and a brake repair. That's routine upkeep, so it's a repair and maintenance expense for the year, not part of the van's cost.

The florist expects to use the van for 5 years and sell it for about $5,000 at the end. With straight-line depreciation:

• Yearly depreciation: ($33,000 − $5,000) ÷ 5 = $5,600
• Book value after year 1: $33,000 − $5,600 = $27,400

At the end of year 1, the balance sheet shows the van at $33,000 less $5,600 of accumulated depreciation, a book value of $27,400. The income statement for the year shows $5,600 of depreciation expense and the $350 repair expense.

Keeping Track of Fixed Assets

A simple fixed asset register keeps the figures in one place. For each asset, record:

• What it is and where it's kept.
• The date you started using it.
• Its full cost, with the invoices and receipts behind it.
• The useful life and salvage value used for depreciation.
• Depreciation each year, accumulated depreciation and book value.
• When it's sold or scrapped, and for how much.

Check the register against the assets you can see at least once a year, and remove anything you've sold or thrown away.

Where Billed Fits

Billed's expense and receipt tracking page says: "Attach the receipt when you record the expense, and it stays with that entry in your Billed account instead of in a drawer or an inbox." Keeping the purchase invoice and receipts for an asset helps you, or your accountant, show what went into its cost. Whether a purchase is capitalized as a fixed asset or treated as an expense is decided in your accounting records, so check with your accountant for larger purchases.

When This Guide Isn't for You

This page follows OpenStax's textbook treatment for a small business. If you lease assets, build assets yourself, or report under specific standards to investors or lenders, ask your accountant how those assets should be recorded.

Related Guides

• What Is Tax Depreciation?
• How to Calculate Depreciation
• Fixed Assets vs. Current Assets
• What Is Amortization?
• What Is a Balance Sheet?

Frequently Asked Questions

What qualifies as a tangible fixed asset?

Under OpenStax's conditions, it's a physical item, and "the item needs to be used in the normal operation of the business for more than one year, not be near the end of its useful life, and the company must have no plan to sell the item in the near future." Land, buildings, vehicles, machinery, computers and furniture are examples.

What is the difference between tangible and intangible fixed assets?

Tangible fixed assets have physical substance. Intangible assets, such as copyrights, patents, goodwill and trademarks, have financial value but no physical presence. The cost of a tangible asset is spread out through depreciation, and the cost of an intangible asset through amortization.

Is land depreciated?

No. In OpenStax's treatment, land is assumed to have an unlimited useful life, so it isn't depreciated and stays on the books at its historical cost.

What costs are included in a fixed asset's cost?

The purchase price plus the costs of getting the asset ready to use, such as shipping, taxes, assembly and legal fees. Routine repairs after that are expenses, but work that extends the asset's useful life is added to its cost.