What to know about business assets

Anything your company owns and uses to help it operate or generate value is considered a business asset. This includes equipment used to create products, inventory on hand, real estate, vehicles and even trademarks or patents. If it has value and helps support your daily operations, it qualifies as a business asset. 

Here’s a closer look at how to define the assets your business owns, as well as some examples of each type and how they’re used in financial reporting. 

What you’ll learn:

• Business assets are items of value that help a company run and support its growth.

• Tangible assets include physical items like equipment and buildings, while intangible assets are nonphysical items like trademarks and intellectual property.

• Current assets are short-term resources a business can convert into cash within a year, while noncurrent (or fixed) assets are long-term resources used over time.

• Business assets appear on a company’s balance sheet and are listed separately from liabilities and owner’s equity.

• Determining the value of business assets helps you track costs and understand your company’s overall financial worth.

An asset in business is an item of value that helps your organization run, grow and generate income. Think about the things your business uses daily—the chair you sit in or the computer you just sent an email from. Those are business assets. Your petty cash? Also an asset. If your company owns it and benefits from its use, it’s an asset.

But business assets don’t have to be things you can see and touch. Some nonphysical resources, like your brand reputation and intellectual property, can also bring value to your company.

Tracking and managing your business assets is essential for your company’s financial health and long-term success. You’ll itemize and value them on your business balance sheet, where they appear as one of three key sections alongside liabilities and owner’s equity.

Business assets typically fall into a couple of different categories. First, there are tangible and intangible assets. Then there are current (or short-term) assets and noncurrent (or long-term or fixed) assets.

Tangible business assets are the physical items your company owns and uses to operate. Since they usually have a market price or resale value, tangible assets generally have a clear monetary value. However, that value can decrease over time as your business uses these assets.

Tangible business assets examples are:

• Equipment, machinery and tools used for production 

• Inventory, including both raw materials and finished goods

• Furniture and fixtures, like desks, chairs and shelving

• Real estate and buildings, such as storefronts and warehouses

• Vehicles, like company cars or trucks

Intangible assets are business assets defined as nonphysical resources that add value to a business. Like tangible assets, they contribute to daily operations or give your business a competitive edge. But unlike tangible assets, you can’t see or touch them, which can make assigning a monetary value challenging. Because of this, many intangible assets don’t appear on your business’s balance sheet.

Examples of intangible assets are:

• Intellectual property, like trademarked logos or symbols, copyrights, and patents

• Brand recognition and reputation

• Customer loyalty and relationships

Business assets can also be categorized as current or noncurrent assets based on how quickly they can be converted into cash. 

Current assets include the short-term resources your business can use, sell or convert into cash within one year. 

Current business asset examples are:

• Cash and cash equivalents—money that’s ready to be spent

• Stock inventory and raw materials

• Marketable securities

• Short-term investments

• Accounts receivable or money the business is owed from customers

• Prepaid expenses—payments made in advance for goods or services

Noncurrent assets are resources your company uses long term to generate income or run operations beyond a year. 

Noncurrent business assets include:

• Property, plant and equipment such as buildings, machinery and vehicles

• Long-term investments, like stocks and bonds

• Intangible assets, such as patents and trademarks

Business assets are listed on a company’s balance sheet alongside liabilities and equity. Assets should equal your total liabilities plus equity. If these numbers don’t add up correctly, there may be missing or incorrect information on your balance sheet.

Assets are typically listed in order of their liquidity, or how easy they can be turned into cash. Here’s an example of what the business assets section might look like on a balance sheet:

The assets for Ken’s Coffee and Bakery come to a total of $196,500. The liabilities and equity sections typically follow the assets on the balance sheet. Liabilities include both short-term and long-term costs, such as loans, accounts payable and deferred tax liabilities. The equity section represents the difference between assets and liabilities. Generally, the more valuable your assets and the fewer debts your business has, the stronger your company is financially.

To value your business’s assets, you need to determine what they’re worth. The method you use will depend on the type of asset—whether it’s tangible or intangible. 

Since tangible assets are physical items like equipment and inventory, they’re generally easier to assign a value to. However, you’ll need to account for depreciation because, over time, their value will decrease based on normal wear and tear, age and other factors. 

For example, say Ken, the coffee shop owner, purchases a new industrial mixer for $1,000. He expects to use it for five years, and based on past experience, he estimates he can sell the mixer for $300 when he’s ready for an upgraded model. Ken could use the straight-line depreciation formula, shown below, to calculate its value over time:

Depreciation = (Cost − Salvage value) / Useful life 

Depreciation = (1,000 − 300) / 5 

Depreciation = 700 / 5 = 140

So, Ken would record $140 as a depreciation expense each year for five years. When he sells the mixer for the estimated $300, that amount would be recorded separately as income.

Determining the value of intangible assets can be a little more complicated. You might consider what it cost to develop the asset, what similar assets have sold for or how much revenue it could potentially generate over time. This valuation step helps you assign a fair value to the asset. Once determined, the cost of the intangible asset is typically spread out over its useful life using a process called amortization. Unlike depreciation, amortization doesn’t account for wear and tear—it simply spreads the asset’s cost evenly over time.

If Ken purchased a trademark for a signature coffee drink for $1,000 and he estimates its useful life to be five years, he can spread the cost evenly over time using straight-line amortization. That would look like:

Amortization = Cost of intangible asset / Useful life

Amortization = 1,000 / 5 = 200

Using this method, Ken would understand that he should report $200 in amortization expenses every year for that particular asset.

Valuing your business assets can help you keep better track of your costs, manage financial reporting and understand your company’s overall financial worth.

Understanding your business assets, including how to categorize them and assign value to them, is key to managing your company’s finances. Tracking them accurately on your business balance sheet can help support your long-term growth while improving your daily operations. 

Capital One offers a variety of business credit cards that help you manage your finances and track your expenses. See if you’re pre-approved today, without any impact on your personal credit score.