The Accounting Equation – Every Business Has Assets
No matter how small your business, no matter what industry your company is part of, your company has assets. From a computer used to prepare customer invoices to a 20,000-square-foot processing plant, every single thing your company owns is an asset, as long as you can assign a dollar value to it.
Some assets are physical, such as computers, file cabinets, and delivery vans. Others are legally binding promises, such as accounts receivable, which is the money owed to your company by its customers. Still others seem to exist more on paper, though they may also have tangible form, such as the company checking account or prepaid expenses (for example, a year’s worth of insurance paid in advance). Regardless of the form it takes, anything with monetary value that your company owns or owns the rights to (such as the right to collect money from customers who owe it) counts as an asset.
Assets appear on your balance sheet, which is one of the key financial statements produced at the end of each accounting period. On this report, your assets will be split into different types to make analysis easier. The order in which you list them on the balance sheet typically matches the way they appear in your chart of accounts.
Assets do more than just show up on reports, though. They are the resources your company uses to produce revenue, and revenue is what keeps your company alive. Your business cannot bring in sales without assets, and while this connection is more clear for product-based businesses, which could not produce a dime of revenue without inventory to sell to their customers, it’s true for service companies as well. At the very least, you have to have cash to pay your expenses and to help get the word out that your company exists. Service companies also need basic tools to provide service to customers: a hair stylist needs a chair, scissors, and styling tools; an accountant needs a computer and a lot of file cabinets.