What is an asset? A quick guide to business assets

What is an asset? Every business needs them to operate but it’s not always clear what is, and isn’t an asset. Here’s a quick guide to business assets, which can be categorised in different ways.

What are company assets?

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

It’s important to understand assets, as they play an important role in business accounting. For example, when creating a balance sheet to understand your business’s financial position, you’ll need to list business assets (and business liabilities).

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

Then you usually categorise business assets and separate them into different types. Here’s a guide to the different categories.

Current assets and fixed assets

One way of categorising business assets is by current assets and fixed assets. This is what you’ll usually see on a balance sheet.

What are current assets?

A current asset definition is a business asset that has a short life span (less than a year) and can be easily converted into cash.

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

Other current assets include:

• accounts receivable (what you’re owed for products or services already delivered)
• stock and inventory
• deposit accounts
• cheques
• 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 definition is a business asset that has value over a longer life span (more than a year) and can’t be easily converted into cash.

A good example of a fixed asset is property, which you usually own for the longer-term. Property doesn’t give easy access to cash either.

Fixed assets depreciate in value over time, during the course of their life. This should be accounted for on a balance sheet (for example, under the heading less accumulated depreciation).

Other fixed assets include:

• plant (e.g. facilities and infrastructure)
• equipment
• tools and machinery
• furniture
• leasehold improvements (enhancements made to a space by a business tenant)
• long-term investments

Tangible assets vs intangible assets

Another way of categorising business assets is by separating them into tangible and intangible assets. These depend more on their physical attributes rather than their life span.

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

What is a tangible asset?

A tangible asset definition is a physical asset that your business owns. These assets include cash, vehicles and equipment, as well as:

• stock
• buildings
• land
• machinery
• investments

What is an intangible asset?

An intangible asset definition is an asset that isn’t physical, yet still has clear business value.

Tangible assets often have a clear and finite value, but it can be more difficult to value intangible assets. Methods involve forecasting the after-tax cash flow the asset is expected to produce, or working out how much it cost to develop the asset.

Intangible assets include your business’s:

• brand
• reputation
• goodwill
• intellectual property
• licences
• franchises
• trade secrets

More useful articles for small business owners

• What is capital gains tax?
• How to write a business plan: your free business plan template
• Which bank has the best business bank account?
• Read about business equipment insurance

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

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