Understand what is considered an asset in accounting, see some examples of assets and find out how they appear on the balance sheet.
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Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.
1. What is an Asset?
An asset in accounting represents an item that brings financial value to the business, either by helping to generate income or money owed. Assets appear on the balance sheet of the business.
2. Types of Assets
When assets are disclosed on the balance sheet and are classified on the balance sheet depending on their type, physical existence and convertibility into cash. The four categories are:
- Fixed Assets
- 1.1 Tangible Assets
- 1.2 Intangible Asset
- Current Assets
- 2.1 Operating Assets
- 2.2 Non-operating Assets
2.1 Fixed Assets
A fixed asset is something a business buys to generate income which is typically owned for a number of years. Fixed assets are classified between tangible and intangible assets, the difference being whether they have a physical presence or not. For example, a manufacturing business that buys machinery to produce goods that it sells to generate revenue would classify this equipment as a tangible fixed asset. Whereas a business that has goodwill that arose on the purchase of the Company would be classified as an intangible fixed asset.
2.2 Current Assets
Current assets are items held by the business that are either cash or readily convertible into cash, usually within one year of the balance sheet date. Operating assets relate to assets that arise as part of business operations such as trade debtors. Non-operating assets relate to investments owned by the business such as investments in listed and unlisted shares in the short term.
3. Examples of Assets
Examples of assets include:
- Equipment;
- Computers;
- Property;
- Listed investments;
- Cars;
- Vans;
- Websites;
- Stock;
- Trade debtors;
- Tax repayments;
- Cash.
5. Asset v. Liability
An asset in accounting represents money owed to the business such as trade debtors, whereas a liability represents the people and organisations that a business owes money to for debts.
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