Distinguish between fixed assets and current assets.

Fixed assets and current assets are two fundamental categories of assets on a company's balance sheet, each serving different purposes and having distinct characteristics:

Fixed Assets:
Fixed assets, also known as non-current assets or long-term assets, are resources that a company owns and utilizes for its operations over an extended period, typically exceeding one year. These assets are essential for the company's core business activities and are not intended for immediate sale. Examples of fixed assets include property, plant, equipment, machinery, vehicles, and land. Fixed assets are recorded on the balance sheet at their historical cost, which includes acquisition costs, installation costs, and any other necessary expenses to make the asset operational. Depreciation is applied to fixed assets over their useful lives to reflect their gradual consumption or loss of value over time. Fixed assets play a crucial role in generating revenue and contributing to the company's long-term growth and profitability.

Current Assets:
Current assets are assets that are expected to be converted into cash or used up within one operating cycle, typically one year or less. These assets are highly liquid and provide the company with short-term liquidity to fund its day-to-day operations. Examples of current assets include cash and cash equivalents, accounts receivable, inventory, prepaid expenses, and short-term investments. Current assets are recorded on the balance sheet at their fair market value or the lower of cost or market value, depending on the accounting standards used by the company. Unlike fixed assets, current assets are not expected to provide long-term benefits to the company but rather support its ongoing operational needs and working capital requirements. The management of current assets is crucial for maintaining liquidity and ensuring the company's ability to meet its short-term obligations and operational expenses.

In summary, fixed assets represent long-term resources used in the company's operations, while current assets are short-term resources that support day-to-day activities and provide liquidity. Understanding the distinction between these two asset categories is essential for financial analysis, decision-making, and assessing a company's overall financial health and operational efficiency.