Business Plan Balance Sheet: Fixed Assets - dummies

Business Plan Balance Sheet: Fixed Assets

By Steven D. Peterson, Peter E. Jaret, Barbara Findlay Schenck

You should be able to identify your fixed assets for your business plan balance sheet. Fixed assets are usually big, expensive, and meant to last a long time, so they’re not very liquid. Fixed assets include

  • Land: If your company owns land — the ground under your office building, for example — you list it separately from your office building on the balance sheet. Unlike other fixed assets, land doesn’t depreciate on your balance sheet because it’s considered an asset that doesn’t wear out over time.

    For that reason, you leave the same land value on the books year after year. Land can appreciate in value, of course. But you still keep the value the same on the books until you sell the land.

  • Buildings: As far as your balance sheet is concerned, the value of buildings is equal to the original price you paid for them plus the amounts you’ve spent on improvements over the years. Again, any appreciation in value that may have occurred is only recorded if you sell the building.

  • Equipment: Equipment includes anything and everything you acquire for your business that’s meant to last more than a year. Machinery, cars, office equipment, computers, telephones, and furniture all fall into this category. When you enter the value of each asset on your balance sheet, use the actual price you paid for it. If you didn’t pay cash, assign a reasonable value to include on your balance sheet.

  • Accumulated depreciation: Each big-ticket item that you acquire for your business has a useful life span. Depreciation measures the decline in useful value of each fixed asset over time. Don’t worry, you don’t have to come up with the numbers; the IRS provides standard depreciation schedules, depending on the kind of assets you own.

    Accumulated depreciation sums up the value loss of all your assets over your years of ownership and reduces the total value of your fixed assets accordingly.

On your balance sheet, the value of a fixed asset is based on the original price paid minus any accumulated depreciation according to the IRS’s general depreciation schedule. The resulting number may have very little to do with the price you would receive if you sold the asset or the price you would pay if you replaced it.