What are assets?

A small building firm has a van, tools, a stock of materials, money in the bank and open invoices with clients. Together that is what the company owns: its assets. On the other side of the balance sheet is how those possessions were paid for, with the owner's money or with debt.

Accountants divide assets into two groups. Current assets are things you will turn into cash or use up within a short time, such as stock, receivables and money in the bank. Fixed assets stay in the business for longer, such as the van or a machine. You can read more about that second group under fixed assets.

What goes wrong? A piece of equipment in daily use that is not in the records means you miss its value and its depreciation. The other way round, a machine sold or scrapped long ago may still sit on the balance sheet, so the company looks wealthier than it is. Receivables that nobody expects to collect also sometimes stay in for too long.

Make sure what the balance sheet shows matches what is really there. Count the stock, review open items and go through the list of equipment every year. You find the balances of all asset accounts in the trial balance, and that is also where you can see whether they make sense.

Assets on their own say little about how healthy a business is. A picture only emerges together with the debts and the owner's equity. But without a reliable list of what you own, that picture is worth nothing either.