Assets: Owned fixed and liquid items with a debit balance

Assets are the items owned by a business. They are non-current also known as fixed or they are current also known as liquid.

Non-current or fixed assets are those tangible or non-tangible items that have long life in the business. They are classed as permanent when compared to the current or liquid assets.

The assets that are referred to as current are cash or cash equivalent items which means that they can be turned into cash easily. They are classed as liquid when compared to fixed or permanent assets.

In accounting, when assets increase, they are recorded on the debit side or the left side of the ledger account. This is also called the T account. When assets decrease, they are recorded on the credit side of the ledger account.

In financial statements, assets appear in the balance sheet and are listed in the order from permanency to liquidity. Here is a list of assets that usually appear in basic accounting.

Non-current or Fixed Assets

Goodwill

Goodwill is the reputation of the business. This is an intangible non-current asset. It is separate from the tangible non-current assets and has its own value. The asset goodwill represents the success of heavy marketing, quality product and good customer service.

The management of a business decides on the value of goodwill which is based on the public’s awareness of the brand and the good name that the company has made for itself over a period.

It is not depreciated by accounting standards but it is possible for goodwill to reduce in value if the reputation is affected negatively, e.g. receiving a bad customer’s review due to change in product or service quality.

Land

Land is the most permanent or non-current tangible asset of the business. The value of land is based on the location. It is important for customers to access a business that is not too far from civilisation. The roads should be properly paved and must lead to a safe, clean customer-friendly environment.

The asset land does not depreciate by accounting standards but the value increases with time. However, it is possible for land to reduce in value if the community becomes a crime prone area causing law-abiding citizens to avoid the community.

Building

Building is a tangible non-current asset of the business. The value of the building is based on the raw materials and labour cost which is determined by its size, age, design, and appearance. A building with a modern design is more expensive than an old one because of the structural challenges involved (source).

The asset building is worth a lot if it is able to withstand the disastrous effects of an earthquake, hurricane, tornado or tsunami. In accounting, building is depreciated overtime to present an accurate residual value of the asset after it is exposed to weather beating externally and wearing down internally through human contact.

Fixtures and Fittings

Fixtures and Fittings are tangible non-current assets of the business. They are the little items that make a building functional. According to Our Property, Fixtures are light fitments, central-heating boilers and radiators, built in cupboards, bathroom sinks/toilets, plugs, kitchen units, and wall paintings.

Fittings are paintings or mirrors that are not bolted but hung or screwed to a wall, carpets, curtains and curtain rails, free-standing ovens, refrigerators, sofas and other free standing items of furniture, lampshades, television aerials and satellite dishes. These items are depreciated to present an accurate residual value overtime.

Equipment, Machinery and Tools

Equipment, Machinery and Tools are tangible non-current assets that allow the business to operate. These items are valued based on their cost which is determined by the brand. Expensive brands of Equipment, Machinery and Tools usually mean high quality products that work effectively and have long life.

It is a possibility that cheaper brands require consistent repairs and servicing. Depreciation is charged on these items to present an accurate residual value overtime.

Motor vehicles

Motor vehicles are tangible non-current assets that allow the business to transport goods in and out of the compound. Motor vehicles are valued according to their cost which is determined by their age and model. Expensive models usually mean more durability to withstand heavy work on the road.

Motor vehicles generate a lot of expenses in a business. They require fuel, maintenance, repairs and insurance. Also, the carriage of goods to the customers and carriage from the suppliers are expenses in the financial statements. Depreciation is charged on Motor vehicles to present an accurate residual value after wear and tear overtime.

Current or Liquid Assets

Inventories/Stock

Inventories/Stock is a current asset that are products ready and available to sell to customers. The business owns the products in its warehouse, store room or on the shelves of its retail store until they are sold. It is important that products are delivered to customers in the exact condition in which they were when the sale was made.

Once the goods reach the hands of the customers, they are no longer called Inventories/Stock, but Sales. When the business buys more goods to add to the remaining Inventories/Stock, the transaction is called Purchases.

When the business transport the goods into the compound to restock, it is called Carriage Inwards and when the business transports the goods to the customers, it is called Carriage Outwards.

When the business sends back goods to the suppliers, it is called Returns Outwards and when customers bring back goods to the business, it is called Returns Inwards.

Prepaid expense

Prepaid expense is a current asset that gives the business entitlement to a service in advance. The business owns the right to receive light, phone, internet, rented space or repairs of machinery for a period that was paid for in the past.

It is possible to turn this current asset into cash easily if the business cancels the request for the service and demands a cash refund.

Debtors and Accounts receivable

Debtors and Accounts receivable are current assets that represent money owed to the business. Customers who purchase goods or services on credit are Debtors. Invoiced debtors are Accounts receivable (source).

Accrued revenue for sale of fixed assets or the rental of space in a business is also called Accounts receivable. These accounts are easily turned into cash when the business is paid the debt.

Bank

Bank is a current asset that holds the money the business owns. There are charges to the business for services provided by the bank to receive, store, dispense and manage the money. Payments received in the form of cheques are passed through the bank to be converted into cash.

Debit and credit cards involve the bank in transactions. Bank transfers allow amounts of money to be sent from one account to another without the handling of cash.

Online banking gives a business the opportunity to monitor the account, make purchases and sales, pay bills, and transfer money.

Cash

Cash is the most liquid current asset of the business. It is the money received in hand from customers that is available for spending at any time.

Having cash in hand is necessary for paying for goods and services without involving the bank. This comes in handy especially outside of banking hours, weekends and public holidays.

However, having too much cash on board is a security risk from outside parties and even internally. The business is better off keeping a small amount of cash in hand for incidentals.