Tip

Calculate total assets by adding up the total recorded value of all the company's cash, accounts receivable, investments, inventory, fixed assets, intangible assets and anything else of value.

## What are Assets?

Assets are anything of value owned by your company. Some assets are obvious because you can see and touch them – things like buildings, machinery, vehicles and computers fall into this category. Other assets are intangible but still create revenue for your business, such as domain names, accounts receivable and investments. As things of value, assets get recorded on the company's balance sheet. The company will record them at the time of purchase, so the balance sheet should always reflect what the company owns at a given point in time.

## What are the Different Types of Assets?

Asset classification is a system for placing your assets into groups of like items, based on common characteristics. Companies typically will cluster these groups for reporting purposes on the balance sheet. Broadly, the categories in which assets may be classified include:

• Cash, including petty cash and cash in the bank.
• Accounts receivable, which is unpaid bills.
• Prepaid expenses.
• Inventory, including raw materials, work in progress and finished goods awaiting sale.
• Fixed assets such as real estate, vehicles, computer equipment and furniture.
• Intangible assets.
• Goodwill
• Other assets.

Some businesses say that their employees are their most valuable asset. That may be true, but you can't put a value on your talented team, so employees don't feature on the balance sheet.

## How Do You Record Assets on a Balance Sheet?

For reporting purposes, most businesses divide their assets into current assets and long-term assets. Current assets are things you're going to use up or sell within one year. Everything else is a long-term asset.

Within these two categories, it's conventional to list assets in order of liquidity. Liquidity refers to how quickly you can turn an asset into cash. Cash always appears at the top of the list of current assets, closely followed by accounts receivables, inventory and short-term investments. Also, a company will report prepaid expenses as current assets. For example, if you bought a year-long insurance policy and paid the premium up front, the portion that is not used up yet will be listed on the balance sheet. It's a current asset because you're going to use it up within one year.

The next section on the balance sheet is for long-term assets, which are also called "non-current" assets. This section features harder-to-sell items like real estate, vehicles and machinery. There are also some assets that you cannot see or touch, such as web domain names and product trademarks. These assets are called intangible assets, and you'll list them beneath your fixed assets on the balance sheet.

## How Do You Calculate Total Assets?

Whenever the business buys an asset, it should classify and record the asset in the appropriate spot on the balance sheet. The line item will also record the asset's purchase value. Once you've listed all the assets, the sum of all their valuations gives you total assets. It really is that simple – no accounting equation required!

## Why are Total Assets Important?

Lenders and investors are attracted to businesses with plenty of assets on their balance sheets since it shows you have a large portfolio of assets you can sell to raise money if times get tough. If you apply for new credit, owning cash accounts, inventory and substantial equipment show an ability to pay debt, even when your profit is modest. It also gives you lots of options for reinvestment and growth.

If you are thinking of selling your business, one conventional method of valuation is to add up your total assets and deduct the value of the company's liabilities. Identifying assets and placing the correct value on them is crucial in figuring out your business' net worth in the event of a sale.