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Business assets are essential to the way most businesses function. But getting your head around the different types of assets and how they should be accounted for can be tricky. Letâs take a look at what you need to know.
Business assets are things your business owns or leases that enable you to continue trading. They could be all sorts of things from cash, buildings, and stock, to office equipment and even brand reputation.
In accounting terms, business assets are resources that can be converted into ready cash, or used to generate value. Bank balances, inventory, prepaid expenses and accounts receivable are all good examples.
There are a couple of ways to go about grouping your business assets. The most common is to categorise them according to their type and nature.
Another way of categorising your business assets is by their physical characteristics â that is, whether they are âtangibleâ or âintangibleâ.
These have no physical âtouchableâ presence but still have value to the business, such as the brand recognition which helps drive your sales.
These are physical assets you can touch or measure, such as:
It would be extremely difficult, or even impossible, to run your business without your tangible assets. Although they are items that are not for sale to customers, they still represent a large amount of your company’s worth.
Your tangible business assets:
So that you can make the most of your tangible business assets, youâll need to track and manage them effectively. For accounting purposes, all fixed business assets should be recorded on your balance sheet.
Some assets decrease in value as time goes on. This change in value is measured using an accounting technique called depreciation, and reflected in your records.
Using an efficient asset and inventory management system will also help you track your assets in terms of their quantity, and condition. This is useful for protecting your business from risk of theft, damage, or loss, and help you insure the proper value of your assets.
This bit is particularly worth bearing in mind. As a sole trader you are your business, so own everything within it. Itâs a bit different for limited companies. Company shareholders own the business – but they donât own the assets that come with it.
Even if youâre the only shareholder, you donât own your companyâs assets. The company is its own separate entity, so âitâ owns the assets, not you.
If you buy any assets for your company using your own personal money (this often happens when a business is very new) then you need to transfer ownership of it to the company.
If you do transfer assets to the company, youâll need to be clear about exactly what the current market value is of the asset, bearing in mind its condition, age, and other factors.
Update your records once the transfer takes place, and keep any original receipts as supporting evidence.
This depends on how you close your limited company, and whether or not itâs still solvent (can afford to pay its bills). If the company is insolvent, then any assets are sold to pay off as many creditors as possible.
You can close a solvent company by either:
If you are thinking of buying back any assets from your business yourself, youâll need to consider the tax implications.
Learn more about our low-fee online accounting services, including how to manage your business assets effectively. Talk to one of the team via online live chat, call 020 3355 4047, or get a free instant quote.
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