What is a business asset?
A business asset is an item of value held by a business. Commercial assets cover many categories. It can be physical and tangible property, such as vehicles, real estate, computers, office furniture and other accessories, or intangible items, such as intellectual property.
Business asset accounting is arguably one of the most important jobs in business management. A financial ratio called return on net assets (RONA) is used by investors to establish how effectively companies are leveraging their assets.
Operation of commercial assets
The company’s assets are detailed and valued on the balance sheet, which can be found in the company’s annual report. They are recorded at historical cost, rather than at market value, and appear on the balance sheet as elements of ownership.
Most business assets can be written off and be expensed or amortized, the process of spreading the cost of an asset over time, under article 179 of the year of purchase. Assets are listed in order of liquidity, the ease with which they can be quickly bought or sold on the market without affecting their price.
Key points to remember
- A business asset is property or equipment purchased exclusively or mainly for commercial purposes. It can also be intangible, such as intellectual property.
- The company’s assets are detailed and valued on the balance sheet. They are listed at historical cost and in order of liquidity.
- Most business assets can be written off and amortized or expensed under section 179 during the year of purchase.
- The company’s assets are divided into two sections: current assets and non-current assets.
- The value of the company’s assets can be determined by an appraiser.
Current assets vs. Non-current assets
The company’s assets are divided into two sections on the balance sheet: current assets and non-current assets. Current assets are commercial assets that will be converted to cash within one year, such as cash, marketable securities, inventories and receivables, debts owed to a business by its customers for goods or services that have been delivered or used but not yet paid for. These assets may only have value for a short time, but they are always treated as business assets.
Non-current assets or long-lived assets, on the other hand, are less liquid assets that are expected to provide value for more than a year. In other words, the company does not intend to sell or otherwise convert these assets in the current year. Non-current assets are generally called fixed assets because the cost is capitalized and expensed over the life of the asset in a process called depreciation. This includes items such as property, buildings and equipment.
Depreciation and amortization of business assets
Tangible or physical assets are depreciated, while intangible assets are depreciated, the process of spreading the cost of an intangible asset over its useful life. When businesses amortize and amortize their expenses, they help link the costs of an asset to the income it generates.
Depreciation is calculated by subtracting the salvage value or the resale value of the asset from its original cost. The difference between the cost of the asset and the 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 charge is calculated as $ 100,000 minus $ 10,000 divided by 10, or 9,000 $ per year. In other words, instead of writing off the total amount of assets, capitalized corporate assets are only expensed by a fraction of the total cost each year.
Valuation of commercial assets
The value of business assets varies and may change over time. Many of today’s tangible assets, such as vehicles, computers and machine equipment, tend to age and some may even become obsolete with the introduction of newer and more efficient technologies.
When businesses want to use an asset as collateral or justify capital cost allowances, they can have them valued by an appraiser.