What are business assets? Definitions and examples

By Indeed Editorial Team

Updated 22 June 2022 | Published 3 January 2022

Updated 22 June 2022

Published 3 January 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

A career in the finance industry requires you to have an in-depth understanding of business assets and related terminology. Regardless of your preferred career path, being able to identify and calculate assets may have a direct impact on your company's financial success. Learning about some of the financial aspects of a business can also make you a more attractive candidate to prospective employers. In this article, explain what are business assets, discover the difference between current and non-current assets, review the importance of depreciation and amortisation to business assets and outline how you can classify your business assets.

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What are business assets?

Business assets are tangible and intangible items that are of value to a business. They can help to enhance staff company productivity, efficiency and produce revenue. Tangible assets include things such as office furniture and equipment, goods, manufacturing apparatuses, and property or vehicles for transportation. Intangible assets are things you can't touch, measure or quantify, such as a company logo, brand reputation, marketing slogan or the skill of company employees. An organisation can theoretically use its business assets to generate revenue if it doesn't have the substantial cash flow to cover its current liabilities.

Related: How to calculate variable cost (with components and examples)

What classifies something as a current asset vs. a non-current asset?

It's possible to classify current assets and non-current assets by working out the time it can take to convert an asset into revenue. Current assets are those things that a company can sell to generate revenue by the end of the fiscal year. The timeframe is one year because, after that time, the value of the assets can diminish. In comparison, a non-current asset, sometimes called a long-term asset or capitalised asset, refers to those things that can create value for a company for longer than one year.

For example, current assets can include the current company inventory, any customer debts owed to the business and any marketable securities such as stock or bonds. You can classify these as current assets because customers or suppliers pay their value to the company or the company has to cash them in for money before the end of the year. Non-current assets include any property vehicles or equipment that the company owns, as these assets continue to have value for the business for more than a year, typically the lifespan of the asset itself.

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The importance of depreciation and amortisation to business assets

You can use depreciation and amortisation to work out an estimate of the amount of revenue you may make from your assets by the end of their life cycle. This can help you spread out the value of your assets so they can be of use to your company for a longer time. Here is how you can use depreciation and amortisation with your business assets:

Depreciation and tangible assets

Depreciation refers to the process of how businesses assets lose value over time. Companies often use depreciation to work out the estimated worth of tangible non-current assets like company equipment or property to determine the time it may be necessary for the company to replace them.

For example, if a business buys a new photocopier for £4,500, the machine may come with a warranty that guarantees the photocopier operates for a minimum of five years. The company wants to establish the total revenue they can produce if they sell the photocopier after the five-year warranty expires. The team then researches how much secondhand dealers resell photocopiers for after that period, with the average price being about £1000 after five years. They may use a depreciation formula to generate an estimate:

Depreciation = original cost - resale value / useful life

Then, the person completing the calculations substitutes the values of the photocopier into the formula and solves to get a definitive answer:

Depreciation = £4,500 - £1,000 / 5

Depreciation = £3,500 / 5

Depreciation = £700

According to the depreciation formula, the company determines that it can make £700 in revenue if it sells the photocopier at end of its useful lifecycle.

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Amortisation and intangible assets

Amortisation refers to how businesses find the value of an intangible current asset over its lifespan. This can be of use to companies who have loans, but it can also help a company calculate the revenue generated from things such as their copyright privileges, patents, employee morale or customer satisfaction. For example, a business may develop its marketing department with 10 employees. The company wants to use amortisation for this team to evaluate their skills and list them on the balance sheets.

The finance team first finds the amount of money required to contribute to the employees' salaries, which in this case is £500,000. Then they estimate that the new employees may remain at the company for five years. Next, they establish that the marketing department may help generate up to £200,000 of revenue or profit within five years. To find the amortisation, the finance team uses the formula:

Amortisation = original cost - residual value / useful life

Then, they substitute the collected values into that formula to get an answer:

Amortisation = £500,000 - £200,00 / 5

Amortisation = £300,000 / 5

Amortisation = £60,000

According to the formula, they can include a value of £60,000 for amortisation expenses of the marketing department each year.

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How to list business assets on balance sheets

Knowing how to record business assets on a balance sheet can help you make sure that your organisation follows the key accounting principles and standards set across the industry. You can take the following steps to help you establish how to list business assets on your company's balance sheet:

1. Make a list of all your assets

Start by making a list of all your business assets before developing the balance sheet to ensure you include all the right items. You may also want to ask your colleagues to look over the list, as they may identify any assets that you may have missed. Your assets may include areas such as:

  • Inventory

  • Copyright

  • Patent

  • Customer relationships

  • Accounts receivable

  • Brand

  • Domain name

  • Intellectual-property

  • Computers

  • Desks

  • Cash

  • Chairs

  • Copier

  • Telephones

  • Short-term investments

  • Manufacturing equipment

  • Three office buildings

  • Prepaid expenses

  • Transport vehicles

2. Divide them into categories labelled current and non-current assets

Divide your list into two distinct categories groups. Place an asset under the current column if its value diminishes after a year. Place an asset under non-current assets if it's likely to provide value to your company for more than one year. Using the same list of assets from step one, the list of your current assets may include:

  • Inventory

  • Accounts receivable

  • Cash

  • Prepaid expenses

  • Short-term investments

Noncurrent assets may include:

  • Copyright

  • Patent

  • Customer relationships

  • Brand

  • Domain name

  • Intellectual-property

  • Computers

  • Desks

  • Chairs

  • Copier

  • Telephones

  • Manufacturing equipment

  • Three office buildings

  • Transport vehicles

3. Calculate the total value of all your assets

Calculate the total value of both the current and non-current assets for your company. This is an important step because it can help you find the number of funds available to you if you're required to pay off any business liabilities. Use the following formula to calculate the total value of all assets:

Total assets = current assets + non-current assets

For example, a company may find that its current assets have a value of £500,000 and its noncurrent assets have a value of £3,000,000. Using this formula, the accounting team can determine the total value of all assets for the balance sheet by substituting those numbers in the right places:

Total assets = £500,000 + £3,000,000

Total assets = £3,500,000

4. Calculate the total assets

Total liabilities are the entire amount of money that a business currently owes to sources inside or outside the company. Equity refers to a business's total net worth or capital. If your business's total liabilities and equity equal the same amount as your total business assets, then you know you have entered the data accurately into your balance sheet. To find the total assets, use the formula:

Total assets = total liabilities + equity

For example, after completing other calculations, a company may find that its total assets are £3,500,000, total liabilities are £1,750,000 and total equity is £1,750,000. To determine if the information on the balance sheet is correct, the finance department substitutes these values into the total assets formula:

Total Liabilities + Equity = £3,500,000

£1,750,000 + £1,750,000 = £3,500,000

£3,500,000 = £3,500,000

As their total assets are equal to the sum of their liabilities and equity, the finance team knows they entered their information on the balance sheet correctly.

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