Many people when starting out in business or are new to management are often unfamiliar with accounts and terms used in accountancy. But if you are to be successful, appear knowledgeable and understand the conversations you have with your colleagues you have to get a grip on the basics of finance. Over the next few weeks I’ll be covering some of these. This week I’ll be looking at assets.
What is an Asset?
For a business an asset is an item owned by the company or money or goods owed to a company.
So, a company asset may be an object sitting in the company’s premises or stock that it has purchased and paid for upfront but not yet received.
But, just to confuse you, there are different types of assets – fixed and current.
What is a Fixed Asset?
What makes an asset fixed is how long the company is going to own it. In most cases a fixed asset is something you can touch – though not always – computer software can be classed as either. Your accounts department will probably have a list of what they class as fixed assets. If you own the company then this is something you can decide with your accountant.
Here are the main fixed asset categories:
Land
Buildings and premises
Plant and machinery
Fixtures and fittings
Vehicles
What is a Current Asset?
Current assets, you hope, are going to change hands quickly. These include:
Stock
Cash
Trade Debtors – money owed to the company
Prepayments – if the company prepays for goods in advance this is classed as an asset.
So, a fixed asset is owned by the company for a long period of time and a current asset is not.
Next week I’ll look at why it’s important for a company to distinguish between fixed and current assets.
