Assets in the balance sheet are divided into Fixed Assets and Current Assets.
Fixed assets must be used by the business. So you would not normally expect the family home on the balance sheet. The asset must also have a “life” of more than year, (well, strictly speaking, more than one accounting period, which may be longer or shorter a calendar year)
Fixed assets, for balance sheet purposes, are further divided into:
- tangible fixed assets (eg. plant, machinery, vehicles and so on – things that can be touched)
- intangible fixed assets (eg. goodwill, brands – things that aren’t physical)
- investments (long term) (eg. property held for investment, shares in another company)
Fixed assets must also be depreciated. That is, their value needs to be reduced every year to show that it is being “used up”. (Depreciation will be the subject of a future blog).
These can be things like:
- cash, which includes money in the bank
- prepayments (which are amounts of money paid in advance, by the business)
- short-term investments