What is an asset? Well, we’ve put together a quick guide on business assets, which can be categorised in various different ways.
Business assets are valuable items, that are owned by your business. This may include cash, investments, equipment, and potentially your company’s reputation.
It’s crucial to understand assets, as they play a key role in business accounting. For example, if you’re putting together a balance sheet to look at your company’s financial situation, then you will have to list any business assets (and business liabilities).
To start out, write down everything your company owns, from the desks to the data.
After this, you can categorise business assets into different types. And with that, here’s our guide to the different categories.
Currents Assets & Fixed Assets
One way you can categorise assets is by current assets and fixed assets, as this is what you will usually find on a balance sheet.
What Are Current Assets?
A current asset is defined as a business asset with a short life span, which can easily be converted into cash.
A brilliant example of this is cash itself, as it is readily available and constantly comes in and out of a business.
Current assets could include:
- Accounts receivable (what you’re owed for products or services)
- Stock and inventory
- Deposit accounts
- Bank drafts
- Short-term investments
- Prepaid expenses (goods and services you’ve paid for, to be received in the future)
What Is a Fixed Asset?
A fixed asset can be defined as a business asset with a longer life span, that can’t be so easily converted into cash.
Poprerty is an excellent example of a fixed asset, as you would usually own it for a longer period of time. Furthermore, property also doesn’t provide easy access to cash.
Fixed assets may depreciate in value over time, which would need to be reflected on a balance sheet.
Examples of other fixed assets include:
- Plant (e.g. facilities and infrastructure)
- Tools and machinery
- Leasehold improvements (enhancements made to a space by a business tenant)
- Long-term investments
Tangible Assets vs Intangible Assets
Assets can be categorised by separating them into tangible and intangible assets. These depend more on their physical attributes rather than life span.
If you are looking to value your business, then you may separate assets into tangible and intangible assets.
What Is a Tangible Asset?
A tangible asset can be defined as any physical asset owned by your business. Tangible assets include cash, vehicles, and equipment, as well as:
What Is an Intangible Asset?
An intangible asset can be defined as an asset which isn’t physical, but still has clear value.
Tangible assets have a clear and finite value, whereas it can be more difficult to put a value on an intangible asset. Methods involve forecasting the after-tax cash flow the asset could produce, or to work out how much it cost to create the asset.
Intangible assets include:
- Intellectual property
- Trade secrets
So, there you have it! We hope our quick guide on assets proves useful to your business. It may be especially useful when valuing your company. It may be worth checking out our guide on How to Value Your Business, to learn more.
However, finding an accurate valuation for your business is tough. That’s why we provide a free business valuation for any small business owner looking to find out the value of their business.
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