Debitoor Dictionary

Accounting terms explained in a simple way

Assets – What are assets?

Any item of value owned by an individual or corporation that can be expressed in cash value

Keep track of your assets with cloud-based accounting software such as Debitoor. Try it free for 7 days.

Assets are items or rights purchased by a company that have financial value and are expected to be useful to the business. Assets can fall under several different categories, depending on their purpose and lifespan.

Short-term vs. long-term

Assets can be classified as short-term (current assets) or long-term (fixed assets). The dividing line between an asset considered short-term and one considered long-term is generally one year.

If the useful life of an asset is expected to be less than one year, then it can be considered short-term. If it is longer than one year, it is a long-term asset.

For example: cash and accounts receivable are generally considered short-term assets. Because the amounts of each constantly changes, original balances can be considered short-term.

Equipment purchased for business purposes and not for resale, for example, a computer, vehicle, or necessary software, are considered long-term assets as their useful life will likely last more than one year.

Tangible vs. intangible

Tangible assets, or fixed assets are generally counted as physical items that have a clear purchase value and depreciate at a set rate over time, such as furniture and property.

Intangible assets include items that might not have a physical presence but still represent value in your company. These include accounts receivable, specialised licensing, or a patent, for example.

Assets and depreciation

Most assets face a certain amount of value depreciation caused by time or usage. There are several methods for determining depreciation, however, the most common is known as ‘straight line depreciation’. This method takes the value of the asset at the time of purchase and calculates the decrease in value over the period of time that it will be useful to a company - it’s ‘useful life’.

It is helpful to keep track of asset depreciation as part of maintaining an overall picture of your company’s financial standings. It is also helpful in determining when assets will need to be replaced and when your company is in a good financial position to purchase new assets.

Assets = Liabilities + Owner’s Equity

Assets, liabilities and owner’s equity are the three components that make up a company's balance sheet. The balance sheet provides a snapshot of how secure a company is financially.

Every transaction made by a company, whether cash flowing in or out, should be recorded. These recordings make up your assets, liabilities and owner’s equity.

On a balance sheet, assets are typically recorded on the top or on the left side; liabilities and owner’s equity are recorded on the bottom or on the right side.

If an item can’t be expressed in cash value, then it cannot be listed as an asset in the balance sheet.

Your assets in Debitoor

Assets can be registered and saved in your Debitoor account. Depreciation can also be taken into account by entering the purchase price of the asset and the estimated useful life. Straight line depreciation for the asset is then automatically calculated and included in your accounts!