What constitutes a fixed asset?

A fixed asset refers to long-term tangible assets that a company uses in its operations to generate revenue, and this definition aligns perfectly with the selected answer. Fixed assets are not intended for resale and typically have a useful life of more than one accounting period. Examples include buildings, machinery, equipment, and vehicles, which are crucial for conducting business activities.

In contrast, short-term investments and cash equivalents are classified as current assets because they are expected to be converted to cash or used up within one year. Inventories, while important for sales operations, also fall under current assets as they are meant to be sold within the company’s operating cycle. Thus, the characteristics of fixed assets are distinct, primarily focusing on their durability, use in operations, and long-term utility within the business context.