Asset Definition

In the course of running a business, or even in your personal life, you’ve likely encountered the term “asset.” But what exactly is the definition of  “asset” and how does an asset impact your small business? 

Here, you’ll learn more about assets and why they are important in the context of owning and operating a business.

Asset Definition

According to Merriam-Webster, an asset is an item of value owned by an individual or entity. In the context of a business, an asset can be anything owned by or owed to the company that provides value or a benefit to the business entity.

Assets can be physical, tangible items. However, they do not always have to be. Rather, some assets can be intangible, such as intellectual property rights. 

No matter what type of assets your business owns, it’s important to report them on your company’s balance sheets. Doing so will allow your business to more accurately account for its cash flow and overall value. 

Business Asset Examples

There are a number of different types of assets. However, two primary categories of assets include tangible assets and intangible assets. 

Tangible Asset Definition

Tangible assets are classified by their physical existence. Thus, tangible assets are those that can be seen and felt. 

Common examples of tangible assets include: 

• Cash
• Land
• Buildings or real estate
• Machinery
• Equipment
• Vehicles
• Office supplies
• Inventory

Often, these types of tangible assets can also be categorized as current, or short-term assets, meaning that they can easily be converted to cash or cash equivalents. 

Intangible Asset Definition

Conversely, intangible assets are those that lack any physical existence or attributes. Common examples of intangible business assets include: 

• Patents
• Copyrights
• Trademarks
• Trade secrets
• Goodwill
• Branding 
• Licenses and permits

While these types of intangible assets may not have any physical attributes, they can nevertheless provide great value to a business.  

Asset vs. Liability

While assets are items of value for a business, liabilities are essentially the opposite. In short, liabilities are your own company’s financial obligations to others. 

Examples of liabilities for businesses frequently include:

• Accounts payable
• Financial debt (short- and long-term)
• Income tax obligations payable
• Loan obligations
• Employee benefits
• Interest payable

No matter what types of liabilities your business has, be sure to keep careful and meticulous records. Failure to do so can get you and your business in hot water.  

Why Understanding Assets Is Important

Understanding how assets work and how to keep track of them is crucial to the future success of your business. 

An accurate accounting of your business assets can help you manage capital and cash flow. In turn, this can allow you to create a clearer picture of your business and its financial health to better prepare for the future.

Having an accurate calculation of your business assets is important, so be sure to seek help when you need it. If you’re not sure how to calculate your total assets or what items to take into consideration, don’t be afraid to ask for assistance.

Summary

Assets are any item of value, whether tangible or intangible, that provide some current or future benefit to your business. Understanding what assets you have is crucial to making an accurate assessment of the cash flow and overall financial health of your business. 

We Can Help

Owning and operating your own business doesn’t mean you have to do everything on your own. While running a business can be grueling work at times, having someone in your corner to help can make all the difference. 

No matter what you need or where you are in the business lifecycle, we have the tools and resources to help you along the way. Learn more about why we’re trusted by entrepreneurs and business owners around the country and see how we can help you start, manage, and grow your business today.