An asset is anything a business owns that has measurable value. Assets can be physical items such as equipment and inventory or non-physical items such as patents and trademarks. An asset must be owned or controlled by the business and provide economic benefit now or later.
Accounting services are in high demand, with the global accounting services market valued at over $660 billion in 2025. Managing assets is a major part of business accounting. Below, we’ll discuss how assets are classified on a balance sheet, how they’re valued in accounting, and common mistakes businesses make when they record assets.
What’s in this article?
- Types of assets in accounting
- How are assets classified on a balance sheet?
- What is the difference between tangible and intangible assets?
- Why do assets matter in business decision-making?
- How are assets valued in accounting?
- What common mistakes do businesses make when they record assets?
Types of assets in accounting
Assets come in different shapes and forms, and accountants categorise them to facilitate financial tracking and reporting. Here are the main types:
Current assets: These are assets a business expects to spend or convert into cash within a year. Think of them as short-term resources. Examples include cash, accounts receivable, and inventory.
Non-current assets: These are long-term or “fixed” resources your business uses over time to generate revenue. You cannot easily convert them into cash. Examples include machinery, buildings, and land.
Intangible assets: These are the non-physical assets that still hold value. Intangible assets are harder to evaluate, but they can be just as important as physical assets, especially in industries such as tech and entertainment. Examples include trademarks, patents, and other intellectual property (IP).
Financial investments: Businesses sometimes put their cash into other investments. These count as assets because they’re expected to bring in financial returns later. Examples include stocks, bonds, and mutual funds.
How are assets classified on a balance sheet?
The balance sheet lists and accounts for all your assets and groups them by liquidity (i.e. how quickly they can be turned into cash). Here’s how they’re grouped:
Current assets: The most liquid assets (such as cash and accounts receivable) are at the top of the balance sheet.
Non-current assets: Below the current assets are the less liquid ones, such as property, equipment, and trademarks. These take longer to sell or convert to cash but are necessary for running the business.
What is the difference between tangible and intangible assets?
Tangible assets are physical items; they’re easy to identify and evaluate. These include:
Computers
Office furniture
Company cars
Inventory
Buildings
Intangible assets lack physical form but still hold economic value. Examples include:
A recognisable brand name
Copyrights for original content
Licensing agreements
Trade secrets
Although you can’t physically hold these assets, they often play a big role in a business’s success. For instance, the value of a globally recognised brand such as Coca-Cola extends far beyond its physical factories and inventory.
Why do assets matter in business decision-making?
Assets influence how a business operates and expands. Knowing what assets a business owns and their current state helps leaders decide where to invest and can influence decisions about the following:
Expansion: If a business has an underused warehouse, it might focus on increasing production to maximise its use rather than investing in new real estate.
Upgrades and maintenance: Businesses regularly evaluate their fixed assets (e.g. machinery, equipment) to determine whether upgrades or replacements are needed to stay competitive.
Resource allocation: When budgets are tight, understanding the value and function of current assets helps prioritise spending on areas that provide the best return on investment.
Mergers and acquisitions: When a business considers acquiring another one, it can assess the target’s asset base to help determine its value and potential compatibilities.
Market shifts: If a tech business owns outdated IP, it might shift resources toward developing cutting-edge solutions to stay competitive.
Crisis management: In challenging times, assets such as cash reserves and liquid investments can act as a lifeline, while nonliquid or underperforming assets might need to be sold to stabilise the business.
Assets also inform evaluations of a business’s financial stability. The balance between assets, liabilities, and equity determines how prepared a business is to survive downturns or seize growth opportunities. Stakeholders will look at metrics such as the current ratio (current assets divided by current liabilities) to assess liquidity and solvency. Banks and investors will look closely at asset value, type, and liquidity to confirm the business has the resources to meet repayment obligations before they approve credit or investments. A retail business with a large inventory and valuable real estate might secure a better loan rate than one with limited tangible assets.
How are assets valued in accounting?
Accurately valuing assets is important for compliance with accounting standards and for transparency with investors, lenders, and stakeholders. Accountants use different methods to assign value to an asset, depending on the type of asset and its purpose. Here are some commonly used methods:
Historical cost
Historical cost bases asset value on the original purchase price. For example, if a business buys a building for $1 million, the building’s value on the balance sheet will remain $1 million unless adjustments such as depreciation are applied.
Historical cost is objective and easy to track, which makes it a reliable starting point. But this method doesn’t reflect changes in market value. A building purchased 20 years ago for $1 million might be worth $5 million now, but that appreciation won’t show on the balance sheet if historical cost is the only method used.
Fair market value
Fair market value represents the price an asset could sell for in the current market. This method is particularly useful for assets such as real estate, investments in stocks and bonds, and rare items (e.g. artwork, collectibles).
Fair market value provides a more realistic picture of an asset’s worth but can fluctuate based on market conditions. This can make it more difficult to maintain consistency in financial reporting.
Depreciation
For an asset that loses value over time, such as a vehicle or equipment, depreciation spreads the cost across its useful life. For instance, a truck purchased for $50,000 with a 10-year useful life would incur a depreciation expense of $5,000 annually. This gradual expense recognition helps businesses match the cost of using the asset to the revenue it generates.
Here are two ways to calculate depreciation:
Straight-line method: This spreads the cost evenly over the asset’s life.
Accelerated depreciation: This front-loads expenses, which can be helpful for tax purposes but complicate financial statements.
Impairment
Sometimes, an asset loses value more quickly than expected because of external factors such as market downturns and obsolescence. Impairment tests adjust the asset’s book value to reflect its reduced usefulness. For example, if a piece of equipment becomes obsolete because of new technology, its value on the balance sheet will be adjusted to reflect its reduced market worth.
What common mistakes do businesses make when they record assets?
Even seasoned businesses can make mistakes with asset accounting. Here are a few pitfalls to watch for:
Overestimating asset value: It’s easy to overvalue an asset, especially with intangibles such as brand reputation. Inflated asset values can lead to unrealistic financial projections and poor decision-making.
Neglecting intangible assets: Some businesses focus solely on physical assets and ignore the value of IP or other intangibles. This oversight can understate a business’s true worth.
Forgetting depreciation: Not accounting for depreciation skews financial reports and can lead to surprise expenses.
Mixing personal and business assets: Small-business owners often mix personal and business resources. This can complicate financial tracking and cause issues during audits.
The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accuracy, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent lawyer or accountant licensed to practise in your jurisdiction for advice on your particular situation.