In the previous blog for our commonly asked accounting questions series, we looked at petty cash and how to record it within your Clear Books account. This time we’re focusing on what an asset is, and the different types of asset that are used within accounting.
What is an asset?
An asset, in business terms, is something bought by a company to increase its value and income, or to help benefit the company’s overall operations. Assets will be recorded on a company’s balance sheet, and can either be tangible or intangible.
What is the difference between a tangible asset and an intangible asset?
To easily distinguish between these, visualise tangible assets as physical assets. Or more importantly, they’re items that are not consumed during the course of the business. For example, buildings, company equipment or company cars. You can usually find tangible assets listed under Plant, Property and Equipment on your company’s balance sheet.
On the other hand, an intangible asset is something that is non-physical, such as a brand name, domain names or computerised databases. These assets on the other hand are listed separately on the balance sheet, and by rules of IAS 38, they should be identifiable, controlled by the company and increase future profits. These assets are more likely to bring in more value than tangible assets, as they usually add to a company’s future worth.
Some more examples of tangible / intangible assets include:
- Cash at bank and in hand – Tangible
- Inventory – Tangible
- Land – Tangible
- Software – Intangible
- Website – Intangible
- Patented technology – Intangible
What are current assets?
A current asset is something that the business owns and will consumed or converted into cash within one year.
Current assets examples
- Trade debtors
- Cash at bank and in hand
- Prepayments
What are fixed assets?
A fixed asset is something that the business owns and will be used in the business for at least one year.
Fixed assets examples
- Land
- Buildings
- Fixtures and fittings
- Motor vehicles
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