What type of item is considered a fixed asset?

A fixed asset is defined as a long-term tangible asset that is not expected to be converted to cash within a year. It typically includes land, buildings, equipment, and machinery that are used in the operations of a business.

A commercial building fits this definition well as it is a physical structure intended for business operations and has a significant lifespan, providing value over multiple accounting periods. The costs associated with purchasing, maintaining, and improving a commercial building are capitalized as fixed assets on the balance sheet rather than being expensed immediately.

In contrast, inventory pertains to goods that are held for sale and is considered a current asset because it is expected to be sold and converted into cash within the year. Leasehold improvements might enhance a leased space but are not classified as fixed assets in the same way a building is, as they are tied to the lease duration and can be considered more temporary. Personal property includes various movable assets but does not generally cover buildings or land owned by the business, which further differentiates it from the classification of fixed assets.