The Basic Accounts – Understanding Assets
Assets are those things that your business owns, from the cash in your desk drawer to the file cabinet in the backroom to the delivery van in the drive- way. It does not matter whether they are big or small; all that matters is that your company owns them and that they have monetary value. For that matter, they do not even have to be physical things: patents and copyrights, for example, count as assets even though you can’t touch them. Also, anything your company has a legal right to get, such as future payment from a customer, is accounted for as an asset.
Since there are so many different kinds of assets, they get split into categories to make the accounting less cumbersome.
There are four commonly used groupings, which are pretty standard across businesses:
- Current assets
- Investments
- Fixed assets (also called “property, plant, and equipment”)
- Intangible assets
Current assets include anything that is expected to be turned into cash or used up within one year, such as inventory or cash itself. The investments category contains long-term holdings that are not really used in the normal course of business, such as mutual funds or municipal bonds. Fixed assets also have long lives, and they are regularly used to support regular operations; examples include trucks, desks, and computer systems. Finally, intangible assets are long-term assets that really have no physical form but are still worth money to the company, such as a patent or a trademark.