Definition
Assets are resources a business controls because of past events and that are expected to bring future economic benefits, such as cash, receivables, inventory, equipment and software. They carry a debit balance, are listed first on the balance sheet and always equal liabilities plus equity.
How it works
Assets are split by how quickly they turn into cash. Current assets (cash, receivables, inventory, prepayments) are expected to be realised within twelve months or the operating cycle. Non-current assets (property, plant and equipment, intangible assets, long-term investments) serve the business for longer and are usually depreciated or amortised.
Control matters more than legal ownership: a machine held under a lease can be a right-of-use asset, while a customer's goods stored in your warehouse are not your asset. Every asset account in a chart of accounts increases with a debit, and contra accounts such as accumulated depreciation reduce the gross amount. See how assets are presented in the financial statements guide.
Formula
Assets = Liabilities + Equity
Net assets = Total assets - Total liabilities
Example: assets on a small company's balance sheet
A design studio closes the year with the balances below. Total assets of 118,000 are funded by 43,000 of liabilities and 75,000 of equity, so the accounting equation holds.
| Asset | Type | Amount |
|---|---|---|
| Cash at bank | Current | 26,000 |
| Trade receivables | Current | 18,000 |
| Prepaid insurance | Current | 4,000 |
| Computers and equipment (net) | Non-current | 40,000 |
| Software licences (net) | Non-current | 30,000 |
| Total assets | 118,000 |