Ordinarily, when you're speaking of double-entry accounting, the opposite of an asset is a liability. They're entered on different sides of the ledger, and if everything is right with your books they'll balance out. That kind of fundamental definition doesn't do you much good once your business is up and running, though. Once you're dealing with your own actual assets in real time and accounting for them on a quarterly or yearly basis, it's more useful to think of current assets as the opposite of fixed assets.
Fixed Assets Definition
Before you can talk about the opposite of anything, you have to define what it is you're talking about. In the case of fixed assets, the definition is pretty simple. It's something tangible your business owns and uses in the course of its operations, but it's not something you use up or sell during a normal year's operations. In other words, it's a long-term asset. You may also see them spoken of as capital assets because they're things you spend your capital on when you're starting up and then as needed for as long as your business operates.
Fixed Assets Examples
Your company's fixed assets are easy to spot because they're all around you. If you own your building or the land underneath it, those are fixed assets. So are your computers and printers, the desks they sit on and any company vehicles.
If you're involved in manufacturing, the machines you use to create your products are fixed assets. So are the shelves in your warehouse and the forklifts that lift your products onto them. They're all real, physical things – they're sometimes called tangible assets for that reason – and you use them continuously.
Current Assets Definition
Current assets are different. These are things you've bought and own, but in this case, you do expect to use them up or resell them during a normal year's operation. These might include office supplies, such as ink, toner and paper; the raw materials you use to make your products or your current inventory.
Those things don't always make up the bulk of your company's current assets because current assets can include a lot of things that aren't tangible. This includes:
- Your accounts receivable.
- Any securities or other liquid investments your company owns.
- Any of your year's expenses that are prepaid.
- Your cash reserves and cash equivalents.
Fixed vs. Current Assets
With those definitions in mind, it's easy to see why the textbook asset antonym, a liability, isn't really useful in this context. Your fixed assets are tangible, and they're things you use over a long time – at least beyond your current fiscal year and often for decades. Your current assets are used up, sold or otherwise disposed of within the current year or they're something you can liquidate in a hurry if you should need the money. For practical day-to-day purposes, they're opposites.
Fixed Asset Accounting
As you'd expect, fixed assets and current assets are accounted for quite differently. Most of your durable fixed assets will be reported on your balance sheet as property, plant and equipment, or PP&E. Most of these assets have a reasonably well-defined lifespan, and each year you'll depreciate its value to reflect its shorter lifespan. Ultimately, you'll replace it, at which point you'll either sell it or – if it has no resale or scrap value – simply write off its remaining value as an operating loss. The exception to this general rule is any land you own, which doesn't depreciate unless its value comes from something consumable like the ore in a mine.
Current Asset Accounting
Fixed assets are relatively easy to account for since they remain on the books for years and require little attention other than proper depreciation. Current assets increase and decrease constantly in the normal run of your business' operations, so they require closer attention. Current assets and current liabilities are always balanced against each other on your company's balance sheet, which is where the name comes from.
Creditors and potential investors are always deeply interested in the relationship between your obligations, on the one hand, and your assets and cash flow on the other. If the ratio of your debts and ongoing payments is too high relative to your current assets, you may find it more difficult to secure further credit or investment for your company.