What Are Assets?

In the course of doing business, items are acquired to be used in operations. These items have a value and are referred to as assets. There are different kinds of assets, including tangible assets (physical) and intangible assets (valuable, but cannot be touched). Examples of tangible assets include machinery, buildings, computers, printers, desks, copiers, bookcases, and file cabinets. Copyrights, goodwill, trademarks and patents are considered intangible assets, since they cannot be touched. Even intangible items have value though.

Assets are further classified as current (short-term) or long-term and reported on a Balance Sheet in descending order, based on the level of liquidity. An asset’s liquidity is the ease with which the asset can be converted into cash. Current assets are shown first and can include the balance available in a checking or savings account. The most liquid asset is cash. Accounts receivable is considered a current asset, as are short-term investments (bonds or money markets) and other items which can be used up or converted into cash within a 12-month period.

Long-term assets are listed next on a Balance Sheet. These are items that are not intended to be converted into cash within a year. They can include land, buildings, long-term investments such as stocks or bonds with a maturity date greater than 12 months, and machinery. Since intangible items such as goodwill are not easy to sell they can be considered long-term assets. Goodwill isn’t something you could sell on eBay, but an office desk may generate quick cash flow when sold.

The following financial report is an example of a Balance Sheet shown to illustrate how assets are recorded.

My Business
Balance Sheet for November 30

Assets

 

Liabilities

 

Current Assets

 

Current Liabilities

 
Petty Cash
25.25
Loan Payable
500.00
Savings Account
2275.20
 
 
Checking Account
324.90
 
 

 

Total Current Liabilities

500.00
 
 

Long-term Liabilities 

 

Total Current Assets

2625.35
 
 

Long-Term Assets

 
 
 
Machine ID 20863
400.00

Total Long-Term Liabilities

0.00
10-Year Bond
200.00

Total Liabilities

500.00
 
 

Equity

 
 
 
Owner Equity
600.00
 
 
Current Earnings
2125.35
 
 
Retained Earnings
0.00

Total Long-Term Assets

600.00

Total Equity

2725.35

Total Assets

3225.35

Total Liabilities & Owner Equity

3225.35

Avatar

We provide fast, simple, and affordable accounting and payroll software. After a rough start-up experience, we know first hand what small businesses need in order to breakthrough and achieve success. So we created a software service to help you keep the two things you don’t have enough of… time and money.

Leave a Reply