Fixed assets are typically capitalized and depreciated over their useful life.

• A. They are expensed immediately
• B. They are not depreciated
• C. They are capitalized and depreciated over their useful life
• D. They are indefinite-lived

Answer: (C)

When you acquire fixed assets, you recognize their cost on the balance sheet and then allocate that cost as an expense over the periods the asset is used. This matches the economic benefits the asset provides with the revenues it helps generate, instead of charging the entire purchase to a single period. Depreciation spreads the cost across the asset’s estimated useful life, reflecting wear, tear, and obsolescence as the asset is used.

Expensing the entire cost immediately would misstate both assets and income by front-loading expenses that pertain to future periods. Not depreciating would leave the asset’s value inflated on the books and understate the ongoing expense. Treating fixed assets as indefinite-lived ignores that they have a finite period of usefulness, after which they either wear out or become obsolete.