Originally, when the Item was created the Asset Account type has been set to Fixed Asset, when it should be under Other Current Asset (or other appropriate asset account).
The account type on the GL account could no longer be changed and will be un-editable. You will have to create a new account with the correct account type.
Once created, the item must also be updated with the new GL account, via Item>Accounting>Asset Account.
Upon saving, a message will appear before saving the item record as shown below.
Then click OK
This will automatically update the asset account on the transactions for this particular item. With the update, the balance sheet will only have re-classification effect on the Asset Section. Since the original type is Fixed Asset, related transactions will then be re-classed to Inventory Asset.
As for other transactions like journals using the incorrect account , you will have to edit these to correct the GL account used. You may create a search to see these transactions.