Understanding Assets in Business: A Complete Guide for Bookkeepers My Passion Bookkeeping

Assets (My Passion Bookkeeping)

Whether you are running a corner shop or a startup with big dreams, one thing is certain: Your Business Own Assets -- and how you manage them can make or break your financial health.

But what exactly are Assets? Why they are so important? And how you record them properly?

in this blog, we'll break it all down in plain English.

We are covering:

What Assets are?
The major types of business assets
Real world examples
Journal Entries
Common Bookkeeping mistakes to avoid

Let's dive in.

What are Assets in Business?

Assets are resources your business owns that have economic value and can generate future benefits--Basically, things that help you make money.

Assets can be physical (like equipment), Digital (like Software), or intangible (like Trademarks).

Whether you bought it, earned it, or invested in it, if it's valuable and useful--it's probably an Asset.

Examples:

A Laptop use for Design works
A Delivery van
Costumer Invoices You've issued(Accounts Receivable)
Business name registration

Why Assets Are Important?

Assets help determine:
Net worth of your business
Loan eligibility
Cash flow capacity
Operational strength

Understanding them helps you track what you own, how you use it, and how it supports your goals.

Types of Assets in Accounting

Assets are categorized in several ways — here’s how accountants break them down.

1.Current Assets

📘 Defination

Assets expected to be used or converted into cash within 12 months.

📌 Examples:

Cash & bank balances
Accounts Receivable
Inventory
Prepaid expenses
Short-term investments

Journal Entry Example:

When a client pays you in advance:

Dr. Bank Account................₹10,000
Cr. Unearned Revenue............₹10,000

When you receive payment for a credit sale:

Dr. Bank Account................₹15,000
Cr. Accounts Receivable.........₹15,000

2. Fixed Assets (Non-Current Assets)

📘 Definition:

Long-term assets used in operations — not sold during regular business.

📌 Examples:

Office furniture
Computers
Vehicles
Machinery
Buildings

Journal Entry Example:

Buying a delivery van for ₹5,00,000 in cash:

Dr. Vehicle.....................₹5,00,000
Cr. Bank Account.................₹5,00,000

Recording depreciation after 1 year (₹50,000):

Dr. Depreciation Expense........₹50,000
Cr. Accumulated Depreciation....₹50,000

3. Tangible Assets

📘 Definition:

Physical items you can touch.

📌 Examples:

Lands
Buildings
Inventory
Equipment

Often overlaps with fixed assets but not always — inventory is tangible, but not fixed.

4. Intangible Assets

📘 Definition:

Non-physical resources with value.

📌 Examples:

Trademarks
Patents
Copyrights
Software licenses
Goodwill

🧮 Journal Entry Example:

Purchasing a software license worth ₹30,000:
Dr. Intangible Asset – Software.....₹30,000
Cr. Bank Account....................₹30,000

Operating Vs. Non Operating Assets

📘 Operating Assets:

Used in daily business (e.g., equipment, stock, A/R).

📘 Non-Operating Assets:

Not essential for core business (e.g., investments, idle land).

6. Financial Assets

📘 Definition:

Monetary assets that derive value from ownership rights.

📌 Examples:

Investments in shares
Bonds
Mutual funds
Loans given

7. Wasting Assets

📘 Definition:

Assets that lose value through usage or depletion.

📌 Examples:

Oil wells
Timber reserves
Patents (expire over time)

✅ Real-Life Example: A Startup's Assets

Let’s say you're running a graphic design firm. Here's what your balance sheet might show:

Asset	Type	Amount
Cash	Current	₹50,000
Client Invoices (A/R)	Current	₹1,00,000
MacBook Pro	Fixed, Tangible	₹1,20,000
Adobe Creative Suite (License)	Intangible	₹30,000
Office Chairs & Tables	Fixed, Tangible	₹25,000

⚠️ Common Bookkeeping Mistakes with Assets

Not capitalizing big purchases
→ Don’t expense a ₹1,00,000 printer — it should be a fixed asset.
Forgetting depreciation
→ Assets lose value. Ignoring this gives false profit.
Mixing personal and business assets
→ Keep your laptop and your business’s laptop separate!
Overstating receivables
→ Clients that haven’t paid in months? Consider writing it off.
Ignoring intangible assets
→ Things like branding or a domain name can hold serious value.

📋 How to Track Assets Easily

Use software like QuickBooks, Zoho Books, or Xero to categorize and depreciate automatically.

Maintain a fixed asset register with details like date of purchase, cost, depreciation method, and useful life

Regularly review assets for impairment (e.g., damaged, stolen, or obsolete items).

🔄 Accounting for Assets in the Balance Sheet

All assets appear on the left-hand side (or top, depending on the layout) of your balance sheet. They're listed in order of liquidity:

Current Assets
Fixed/Non-current Assets
Intangible & Financial Assets

🧠 Quick Recap

Type	Purpose	Example	Journal Entry
Current Asset	Short-term use	Cash, A/R	Bank / A/R
Fixed Asset	Long-term use	Equipment	Asset A/c
Tangible Asset	Physical item	Machinery	Asset A/c
Intangible Asset	Non-physical but valuable	Software License	Asset A/c
Financial Asset	Investments or rights	Mutual Funds	Investment A/c
Wasting Asset	Diminishes over time	Oil well	Asset A/c

✍️ Conclusion

Assets are more than just numbers — they represent the value, tools, and potential of your business. Whether you're bootstrapping or scaling, understanding and managing your assets smartly will lead to better decisions, cleaner books, and stronger growth.
So next time you're logging a purchase, ask yourself: Is this something my business will use or benefit from in the future? If yes — it's likely an asset.

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