In plain English
Assets sit on the left side of the balance sheet. They are often split into current assets (expected to be turned into cash within a year) and fixed assets (long-lived items like vehicles and equipment).
Assets equal liabilities plus equity, which is the accounting equation.
Why it matters
Your assets show what the business has to work with, and they back up any loan you request. A lender wants to see cash, collectible receivables and equipment that hold value. If assets are missing from the books, or if old items you no longer own still appear, your financial picture is wrong in either direction.
Classifying a purchase correctly also affects profit. A laptop recorded as an asset is expensed gradually over time, while one recorded as an expense hits profit at once. Getting this right keeps your monthly results comparable and gives your preparer clean data.
Worked example
Cash $14,000 + receivables $6,000 + equipment net $9,000 = total assets of $29,000.
How to handle it
- Review the asset section of the balance sheet each month and ask whether every line is something the business still owns or is owed.
- Reconcile cash accounts to bank statements and receivables to the aging report.
- Keep a written policy for when a purchase is recorded as an asset instead of an expense, and confirm it with your accountant.
- Record new equipment purchases to a fixed asset account with the invoice attached.
- Remove assets from the books when they are sold, lost or scrapped.
Common mistakes
- Recording personal items paid with business money as business assets, which mixes personal and business records and can cause problems at tax time.
- Keeping equipment on the books long after it has been thrown out, which overstates what the business owns.
- Recording a security deposit as rent expense, which loses track of money you expect to get back.
- Leaving old balances in clearing or undeposited funds accounts, which makes cash look higher than it is.
Not the same as: Expense
An asset is something that still has value to the business after you buy it. An expense is a cost that is used up in the period, such as rent or a phone bill. See Expense.
Go deeper
- How to Read a Small Business Balance Sheet: A guide to reading a balance sheet line by line: assets, liabilities, equity, what healthy looks like, and red flags that deserve a question.
Related terms
- Bad debt: A receivable you have decided you will not collect, written off as an expense.
- Balance sheet: A report showing what a business owns, owes and the owner's stake on a specific date.
- Amortization: Spreading the cost of an intangible asset, or the repayment of a loan, over time.
Common questions
What is an asset?
Something the business owns or is owed that has value, such as cash, receivables, inventory or equipment.
Can you give an example of asset?
Cash $14,000 + receivables $6,000 + equipment net $9,000 = total assets of $29,000.
Is cash in my personal account a business asset?
No. Only money in accounts owned by the business belongs on its balance sheet. If you move personal money in, record it as a contribution or a loan from the owner.
Are customer deposits I am holding an asset?
The cash you received is an asset. But because you still owe the customer the work, the same amount is also recorded as a liability until you deliver.
General information, not tax, legal or accounting advice. Confirm rules with the IRS, the NJ Division of Taxation or a licensed professional.