how business assets work
business assets are itemized and valued on the balance sheet which can be found in the company s annual report they are listed at historical cost rather than market value and appear on the balance sheet as items of ownership most business assets can be written off taken as an expense on the income statement either as one large expense in the year of purchase or by being depreciated which is the process of spreading the cost of an asset over time some large expensive assets may qualify to be expensed entirely in the year of purchase under section 179 assets are listed in order of liquidity which is the ease in which they can be quickly bought or sold in the market without affecting their price business asset accounting is arguably one of the most important jobs of company management a financial ratio called return on net assets rona is used by investors to establish how effectively companies put their assets to work special considerationsbusiness assets are divided into two sections on the balance sheet current assets and non current assets current assets are business assets that will be turned into cash within one year such as marketable securities cash inventory and receivables debts owed to a company by its customers for goods or services that have been delivered or used but not yet paid for these assets may only have value for a short while but they are still treated as business assets non current assets or long term assets on the other hand are less liquid assets that are expected to provide value for more than one year in other words the company does not intend on selling or otherwise converting these assets in the current year non current assets are generally referred to as capitalized assets since the cost is capitalized and expensed over the life of the asset in a process called depreciation this includes items such as property buildings and equipment tangible or physical business assets are depreciated while intangible business assets are amortized the process of spreading the cost of an intangible asset over the course of its useful life when businesses amortize and depreciate expenses they help tie an asset s costs to the revenues it generates depreciation is calculated by subtracting the asset s salvage value or resale value from its original cost the difference between the cost of the asset and salvage value is divided by the useful life of the asset if a truck has a useful life of 10 years costs 100 000 and has a salvage value of 10 000 the depreciation expense is calculated as 100 000 minus 10 000 divided by 10 or 9 000 per year in other words instead of writing off the entire amount of the asset capitalized business assets are only expensed by a fraction of the full cost each year the value of business assets varies and can change over time many current tangible assets such as vehicles computers and machinery equipment tend to age and some may even become obsolete as newer more efficient technologies are introduced financial institutions will frequently use return on average assets roaa which is the blended value of all assets to rate a company companies can spend money to buy new assets or improve their existing assets this is known as capital addition and the business records these capital expenditures capex on its balance sheet 