What are assets?
Assets are resources a business owns or controls that are expected to bring it future value, such as cash, stock, money owed by customers, equipment and property.
What assets mean
On a balance sheet, assets are what the business has. They are funded either by what it owes (liabilities) or by its owners (equity), which is the accounting equation: assets = liabilities + equity.
UK accounts group them into:
- Fixed assets (non-current), kept for more than a year: property, vehicles, equipment, computers, and intangible assets such as purchased goodwill
- Current assets, used or turned into cash within a year: stock, debtors, prepayments and cash at bank
Example
| Asset | Type | Amount |
|---|---|---|
| Van, after depreciation | Fixed | £14,000 |
| Tools and equipment | Fixed | £6,500 |
| Materials in stock | Current | £3,200 |
| Customers owing money | Current | £8,900 |
| Cash at bank | Current | £11,400 |
| Total assets | £44,000 |
Why they matter for your business
Assets show what the business could draw on. Lenders look at current assets against current liabilities to judge whether short-term bills are covered, and at fixed assets as potential security.
The balance sheet value is not the market value. Equipment is shown at cost less depreciation, which may be well below what it would sell for, or above. Many valuable things never appear at all: a strong brand built over years, or a loyal client base, is only recognised as an asset if it was bought.
The way assets are bought also affects tax. Plant and machinery qualifies for capital allowances; stock is deducted as it is sold; cash is not taxed until it is earned as profit.
Assets and directors
A company's assets belong to the company, not its directors. Using a company car or taking money without recording it creates benefits in kind or a director's loan.
Keeping track of assets
Keep a fixed asset register listing each significant item: what it is, the date bought, the cost, its expected life and the depreciation charged each year. It supports the figures in your accounts and your capital allowances claim, helps with insurance, and makes it obvious when something is sold or scrapped and needs removing from the books.
Small items below a set value, such as £500, are usually expensed straight away rather than capitalised, to keep the register manageable.
Common questions
Yes. Cash in hand and at the bank is a current asset, usually the most liquid one. An overdraft, by contrast, is a liability. Cash is also the asset lenders look at first when judging whether a business can pay its bills on time.
Fixed assets are kept and used for more than a year, like equipment and property. Current assets are expected to be sold, used or turned into cash within a year, like stock, money owed by customers and bank balances.