List of Assets in a Business
Assets consist of property or other items that a business owns or creates. Different asset classes serve various functions and receive different treatment on tax returns and balance sheets, which reflect the identity, type and amount of assets. Asset accounts do not exist in a vacuum, because a single business transaction or activity affects two accounts, and because a business acquires assets by taking on liabilities and obtaining equity through profits and investments.
Businesses need cash to operate. Cash buys land, buildings, equipment and merchandise, and pays employees and bills. If a business lacks sufficient cash, it has to sell off other assets, and risks becoming bankrupt or unable to continue. Cash comes from profits, loans, people investing in the business, and gains from selling off investments or business property. Loans increase a business’s liabilities, and profits kept by the business grow its equity and the value of the owners’ interests in the enterprise.
Land is a long-term, or capital, asset because the business holds it for more than one year. Businesses normally buy land for or with an office, plant, or other place of business, or for housing and commercial developments. The balance sheet shows the purchase price until it is sold. Land does not undergo wear or tear; the business cannot depreciate it for a tax write-off. Changes in value are not recorded while the company owns the land. Upon sale, the gain or loss is reflected as either an increase or decrease in the cash and owners' equity accounts.
Buildings, such as manufacturing plants, stores and offices, house the enterprise's activities. The balance sheet records the price of a building in the year it is purchased. These assets normally last over several years, eventually losing their useful life. The company may not write off the entire cost in one year, but claims the amount of depreciation in a given year or accounting period as a business expense. While buildings and land are treated differently for taxes and accounting, they are sold together because the building remains attached to the land.
Businesses rely upon equipment to manufacture products, construct buildings, develop land and run offices. Equipment, which is considered personal property because it is movable, may include such items as computers, machines, tools, vehicles used for deliveries, and cash registers. When a company borrows money to buy equipment, it enters into a security agreement giving the lender the right to repossess the equipment if loan payments are missed. As with buildings, equipment lasts numbers of years, undergoes depreciation, and results in tax deductions.
Inventory is personal property that a company acquires or makes for resale. These are not capital or long-term assets because the company wants to sell the inventory rather than keep it. Inventory that does not move undergoes price cuts and discounts, lowering revenue and profits. Excess inventory can also prevent the business from pursuing new products, sales or opportunities. The inventory account increases with acquisitions, but is decreased by sales, which raises cash or accounts receivables.
Intangible assets provide value and rights, but are not physical items. These items include patents, copyrights, brand names, trademarks, computer systems, research, employees with special knowledge and skills, and business organization. Technological and science-based firms carry many intangibles. Valuation may prove difficult because these assets are unique and may not have a ready market for resale. Lenders may be reluctant to lend money to businesses relying heavily on intangibles because of the difficulty in keeping track of them.
Businesses maintain accounts receivables for sales made on credit or a promise to pay on a future date, such as 30 days from delivery, or from when an invoice or bill is sent. Notes receivables represent amounts that the business, especially a lender, is owed when it loans money. When the company gets paid, the receivable is decreased and cash is increased. If a buyer or borrower fails to pay within a certain time, the company can write off the unpaid bill or balance as a bad debt.
A business shows prepaid expenses as assets for items, such as insurance and rent, that it will use in future times. As the rental or insurance coverage is used, for example, the prepaid expense asset account is reduced and the expense is recorded on in the income statement. Some businesses have financial assets, such as stocks, bonds, currency and other items held as investments; the balance sheet reflects the fair market value of the investents.