Glossary · Assets and depreciation
Fixed asset
A fixed asset is something a business owns and uses to earn income for more than a year, such as vehicles, machinery, computers, furniture or a building. It is recorded on the balance sheet at cost and depreciated over its useful life, instead of being expensed in full when it is bought.
Glossary / Fixed asset · Also called Capital asset, Property, plant and equipment
How it works
The test is use and life, not just price. A $2,500 laptop used for three years is a fixed asset; a box of printer paper is an expense. Most businesses set a capitalization threshold, a dollar amount below which purchases are simply expensed, so the asset list does not fill with small items.
Each fixed asset carries its cost, date acquired, useful life, method and accumulated depreciation. When you sell or scrap it, you remove its cost and accumulated depreciation and record any gain or loss against the sale price. Land is a fixed asset that is not depreciated.
Worked example: Buying a $12,000 machine with a loan
A cabinet maker buys a $12,000 saw, paying $2,000 now and financing $10,000. The entry debits Equipment $12,000, credits the bank $2,000 and credits Equipment Loan $10,000. Nothing hits the profit and loss on the day of purchase.
With a $2,000 salvage value and a five-year life, straight-line depreciation is $2,000 a year. After two years the balance sheet shows Equipment $12,000, Accumulated Depreciation ($4,000), and a book value of $8,000.
In the US and in Canada
In the United States
The IRS de minimis safe harbor lets many businesses expense items up to $2,500 per invoice or item (higher for businesses with audited financial statements) if they have a written policy at the start of the year.
In Canada
The CRA has no general dollar threshold, but some small items have their own rules: tools and utensils costing less than $500 go into Class 12 at 100%.
In AcboBooks
Fixed Assets in AcboBooks records each asset's cost, salvage value, life, asset account and depreciation expense account. It can note that an asset was financed by a loan set up under Loans, show the straight-line schedule and book value, and post a year's depreciation.
Related terms
Related on this site
Sources
- IRS: Tangible property final regulations (de minimis safe harbor)
- CRA: Classes of depreciable property
Updated October 25, 2026. General information, not tax, legal or accounting advice. Rules and rates change; check with the IRS, the CRA, your state or province, or your accountant.
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