Posted 25 Apr 2020, Editor's Desk
Understand Deeply the Assets that Affect Your Business
Asset means anything of monetary value owned by an individual or business.
A business asset is a resource that has an economic value for a company and which can be used in the current or future time period to generate revenues.
Examples of business assets are:
Properties of an Assets:
There are 3 key essential properties of a business asset:
Classification of assets:
Business Assets can be classified into 3 categories:
Classifying assets based on how quickly they can be converted into cash i.e. short-term assets and long-term assets.
- Marketable securities – traded investments easily convertible to cash
- Trade accounts receivable (Debtors + Bills receivable)
- Prepaid insurance
- Fixed Assets: machinery, equipment, furniture, buildings, land, etc.
- Investments: similar to fixed assets; long-term investments, not to be sold within 1 year
- Franchise rights, patents, copyrights, trademarks, goodwill, etc.
2. Physical Existence:
On the basis of physical existence, assets can be classified as: tangible and intangible assets.
- Furniture & Fixtures
- Office equipment
- Corporate intellectual property
On the basis of their usage, assets can be classified as operating and non-operating assets.
- Machinery & Equipment
- Patents & Copyrights
- Short-term investments
- Marketable securities
- Vacant land
- Interest income from a fixed deposit
Assets are important for any type of business due to the following reasons:
You can transfer or sell assets, use them to lower your tax liability and in turn increase the efficiency of your business.
A good understanding of assets in business can help you achieve potential savings in your business.
For example: In some cases leasing an asset in a business, such as a machinery, can be way more cost-effective than buying one.
Intangible assets such as patents, copyrights and trademarks help in protecting your business against infringement.
Learning about assets in business is a must for every entrepreneur. The efficient management of assets in a business is absolutely critical, as errors can lead to inefficient decision-making, incorrect tax reporting and inaccurate valuation of your business.