Fixed assets and inventory are two important parts of the company's balance sheet, the difference between the two is as follows:
1, the definition of different: Fixed assets is the company owns and long-term use of items that are not easy to realize. Usually lasts a long time, for example, housing, machinery and equipment, land, vehicles and so on. Inventories are goods or products held by the company for sale or manufacture of goods. They usually last for a shorter period of time, e.g., raw materials, finished goods, semi-finished goods, etc.
2, the classification is different: fixed assets are usually divided into housing, land, machinery and equipment, means of transportation, intangible assets and other categories, while inventory is usually categorized according to the type of product, raw materials, semi-finished products, finished products, spare parts and other ways.
3, the role is different: fixed assets are used to value-added or production of the company's products infrastructure, thus supporting the company's business activities, while the inventory is the company's production and sales of products and commodities, is directly involved in business activities.
4, the financial statement location is different: fixed assets appear in the fixed assets item of the balance sheet, showing all the assets held by the company. And inventory appears in the inventory item, showing all the inventory held by the company.
Application:
Understanding the difference between fixed assets and inventory is important for accounting as well as financial analysis. Here are some examples of applications:
Accounting: accounting requires accurate accounting of a business's fixed assets and inventory, development of proper valuation, and preparation of financial statements such as balance sheets and income statements. In the balance sheet, fixed assets and inventories are listed as separate items and recorded in detail one by one.
Financial analysis: If a business has too much inventory, it will take up a lot of capital and inventory space, reducing the return on capital. If it is too small, it will result in an inability to meet customer demand, reducing sales and revenue. Therefore, it is important for a business to balance inventory levels to maximize efficiency and profitability. In addition, the realizability of fixed assets should also be taken into account.
Operational decisions: Business managers need to develop optimization measures for fixed assets and inventory based on an in-depth understanding of the business operations.
For example, in terms of fixed assets, the introduction of more advanced production equipment to improve efficiency; and in terms of inventory, the control of inventory costs through the adoption of different purchasing strategies, etc.
This is the first time a company has made a decision on how to optimize its fixed assets.