Fixed assets refer to assets that are expected to provide benefits to a company for more than one year, such as property, plant, and equipment. Financing these assets requires a long-term financing strategy. Let us discuss the reasons why fixed assets should be financed through long-term liability:

1. Matching Principle: The matching principle of accounting requires that expenses should be matched against revenues earned during the same period. A long-term asset should be financed through long-term liabilities to match the repayment of the debt with the revenue generated by the asset.

2. Stability: Fixed assets are expected to provide benefits to a company over a long period of time. Therefore, it is important to have a stable source of financing that matches the life of the asset. Short-term financing sources may not be reliable and may not provide sufficient funds to cover the cost of the asset.

3. Cost of Capital: Long-term financing sources such as bonds and loans generally have a lower cost of capital than short-term sources such as bank overdrafts or trade credit. Therefore, financing through long-term liabilities can reduce the cost of capital and improve the profitability of the company.

4. Debt Capacity: A company's debt capacity is limited by its ability to repay its debts. Financing fixed assets through short-term liabilities can limit a company's ability to borrow in the future as it may exceed its debt capacity. Therefore, financing through long-term liabilities can provide more flexibility and increase the company's debt capacity.

In conclusion, fixed assets should be financed through long-term liabilities as it matches the life of the asset, provides stability and reliability, reduces the cost of capital, and increases the company's debt capacity.