What is a 'Business Asset'
Business assets span many categories, such as vehicles, real estate, computers, office furniture and other fixtures, and they are listed on the firm's balance sheet as items of ownership, and most can be written off and either depreciated or expensed under section 179 in the year of purchase. Business assets are different from business expenses, which are simply deducted; likewise, long-term business assets, such as real estate, are different from current assets such as receivables.
BREAKING DOWN 'Business Asset'A business asset is a piece of property or equipment purchased exclusively or primarily for business use. There are many different categories of assets including current and non-current, short-term and long-term, operating and capitalized, and tangible and intangible. Business assets are itemized and valued on the balance sheet, which can be found in the company's annual report. Business assets are listed on the balance sheet at historical cost and not market value.
Business Asset Types and Categories
The management of business assets is arguably one of the most important jobs of company management. As such, accounting for these assets is critical to business success. Assets are listed on the balance sheet in order of liquidity. Long-term or non-current assets are listed under current assets.
Business assets are divided into two sections on the balance sheet: current assets and non-current assets. Current assets are business assets that will be turned into cash within one year, such as cash, marketable securities, accounts receivable and inventory. These assets may only have value for a short while, but they are still treated as business assets. Non-current assets, or long-term assets, are assets that are expected to provide value for more than one year. In other words, the company does not intend on selling or otherwise converting these assets in the current year. Non-current assets are generally referred to as capitalized assets since the cost is capitalized and expensed over the life of the asset in a process called depreciation. This includes assets such as property, buildings and equipment.
Depreciation and Amortization of Business Assets
Tangible or physical business assets are depreciated, while intangible business assets are amortized. Intangible business assets include assets such as goodwill, brand, patents, and software. The method used to calculate depreciation expense is much like it is for amortization. The difference between the cost of the asset and salvage value is divided by the useful life of the asset. If a truck has a useful life of 10 years, costs $100,000, and has a salvage value of $10,000, the depreciation expense is calculated as $100,000 minus $10,000 divided by 10, or $9,000 per year. In other words, instead of writing off the entire amount of the asset, capitalized business assets are only expensed by a fraction of the full cost each year.