DECA Retail Merchandising Practice Exam

What does the term "fixed assets" refer to?

1. Assets that can quickly be converted to cash

2. Assets that have a long-term use

3. Assets that are only intangible

4. Assets that diminish in value quickly

The correct answer is: Assets that have a long-term use

The term "fixed assets" refers to assets that have a long-term use in a business's operations. These assets are not intended for immediate sale or conversion to cash, but rather they are used to produce goods or services over an extended period of time. Fixed assets typically include property, buildings, machinery, and equipment. Unlike current assets, which can be easily liquidated, fixed assets are essential for the ongoing functions of a business and are usually depreciated over their useful lives rather than sold quickly. Other options do not accurately represent the nature of fixed assets. For example, assets that can quickly be converted to cash characterize current assets, while those that are only intangible would refer specifically to intangible assets, such as patents or trademarks. Additionally, assets that diminish in value quickly are often not classified as fixed assets, as these would include items with short lifespans or rapid depreciation rates, contrasting with the stability and longevity of fixed assets.