What is an asset? Business assets explained


What is an asset? Here’s a quick guide to business assets, which can be categorized in a number of ways.

Meaning of business assets

Business assets are valuable items that your business owns. Business assets include cash, investments, equipment, and even your business reputation.

Understanding assets is important because they play an important role in business accounting. For example, when creating a balance sheet to understand the financial position of your business, you will need to list business assets (and business liabilities).

The first step is to list everything your business owns, from offices to data.

Then you generally categorize the company’s assets and separate them into different types. Here is a guide to the different categories.

Current assets and fixed assets

One way to classify business assets is by current assets and fixed assets. This is what you will typically see on a balance sheet.

What are the current assets?

A definition of current asset is a business asset that has a short lifespan (less than a year) and can be easily converted to cash.

A good example is therefore cash itself, which is readily available and continually comes in and out of your business.

Other current assets include:

  • accounts receivable (what is owed to you for products or services already provided)

  • deposit accounts

  • checks

  • Bank drawings

  • short term investments

  • prepaid expenses (goods and services you paid for, to be received in the future)

What is a fixed asset?

A definition of an asset is a business asset that has a value over a longer lifetime (more than a year) and that cannot be easily converted to cash.

A good example of immobilization is goods, which you usually own over the long term. The property also does not provide easy access to cash.

Fixed assets depreciate over time over their lifetime. This should be recorded in a balance sheet (for example, under the heading less accumulated depreciation).

Other fixed assets include:

Tangible assets vs intangible assets

Another way to categorize business assets is to separate them into tangible and intangible assets. These depend more on their physical attributes than on their lifespan.

You can separate assets into tangible and intangible assets if you want to value your business.

What is a tangible asset?

A definition of tangible asset is a physical asset that your company owns. These assets include cash, Vehicles and equipment, as good as:

  • Stock

  • buildings

  • Earth

  • machinery

  • investments

What is an intangible asset?

A definition of intangible asset is a asset that is not physical, but still has a clear business value.

Tangible assets often have a clear and finite value, but intangible assets can be more difficult to assess. The methods consist of forecasting the after-tax cash flow that the asset is expected to produce or calculating the cost of developing the asset.

Intangible assets include:

Photograph 1: mavoimages / stock.adobe.com/uk

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