By definition, assets are those things your business owns that hold value. Often, these assets are found in your company’s balance sheets and fall under different categories. Everything in your office, including your computer to your products, is an asset and should be recorded accordingly.
Many companies still use traditional accounting systems in managing their assets, and that’s still acceptable. However, accounting software can help you accurately record and manage your assets.
Understanding Assets
Your accounting department considers everything you own as assets. These assets can be tangible, like your company car and office furniture. Meanwhile, intangible assets include copyrights, patents, and trademarks.
Furthermore, assets can also be fixed or current. Accounts receivables and cash accounts balances are appraised as existing assets, while properties like buildings and land are considered fixed assets. While there are several types of assets, the general definition is the same.
Assets have three classifications:
- Physical properties: Intangible and tangible assets are all part of physical properties. Tangible assets are those things you can touch; intangible assets do not have a physical form but hold value.
- Convertibility: Convertibility is how quickly you can turn an asset into cash.
- Non-operating and operating assets: Companies have assets that they regularly use for operation, called operating assets. Non-operating assets include investments, interest income, and land estates.
Different Types of Assets
In general, your balance sheet should comprise at least six different types of assets. Categorizing an asset correctly is essential. You don’t want to get confused in looking for the details of your asset when you need them promptly.
Non-current or Fixed Assets
Fixed assets, also known as non-current assets, are classified by how quickly you can turn them into cash. The only difference is that non-current assets are significant properties that you cannot quickly turn into money. These assets typically require complicated processes before you can convert them into cash. They include the following:
- Land
- Machinery
- Copyrights
- Buildings
- Equipment
- Land
- Patents
Current Assets
Current assets are labeled according to how convertible they are to cash. These assets are easy to turn into cash and do not require complex processes. Examples of current assets are:
- Cash equivalent accounts
- Cash accounts
- Inventory
- Accounts receivable
Assets that you can transform into cash in less than 12 months fall under current assets.
Tangible Assets
You can track your assets by their physical existence: tangible and intangible. Tangible assets commonly include the following:
- Inventory
- Cash
- Equipment
- Marketable securities
Any property of your business that has a physical form is under the tangible category.
Intangible Assets
Unlike tangible assets, intangible assets do not possess a physical form. In other terms, you cannot touch them. Here are some examples:
- Copyrights
- Patents
- Goodwill
- Licenses
- Trademarks
Yet intangible assets often hold significant value than tangible assets.
Operating Assets
Assets you directly use in your business have two classifications: operating and non-operating assets. Operating assets could include:
- Inventory
- Copyrights
- Cash accounts
- Account receivable
- Patents
These assets are those you use in your business regularly. In general, your business cannot function well without them.
Non-operating Assets
Non-operating assets include those you own that you do not use in your business regularly. You only pull them out whenever needed, such as:
- Short-term investments
- Marketable securities
- Vacant land
These assets usually hold massive value, but they are not a daily requirement for your businesses; that’s why they are called “non-operating.”
How to Protect Your Assets
Your assets are essential to the success of your business. Like your employees, you need to provide adequate protection to each of them. So how exactly can you protect your valuable assets? Here’s a list of things to do:
- Create employment agreements. Ensure that your employees have agreed never to reveal any sensitive information, formulas, records, or intellectual properties you have. They are forbidden to share this information with anyone unrelated to the company.
- Document your assets. If you want to protect your intangible assets, apply for their documentation. Assets such as patents, copyrights, and trademarks are not honored unless appropriately documented.
- Protect your information. Do not give access to all employees. If possible, restrict access to essential documents and apply for password protection.
- Nondisclosure agreements. Keep your company’s sensitive information from the public by signing confidentiality agreements.
- Incorporate your company. Separate your personal properties from your business assets, such as houses, savings, and cars. Doing so will limit the risk of personal liability.
Managing your assets properly is fundamental in protecting your business’s possessions. As a responsible business owner, you need to take precautionary measures to secure them. Your assets could be the only thing that can save your business from going bankrupt.
