What Are Assets

What Are Assets, Liabilities, and Owners' Equity?

Assets, liabilities and owners' equity are the three components that make up a company's balance sheet. The balance sheet, which shows a business's financial condition at any point, is based on this equation:

Assets = Liabilities + Owners' Equity

This equation is also the framework for keeping track of money as it flows in and out of your company. Starting with the first penny you earn, you'll record in a general ledger each and every transaction using a double-entry system of debits and credits. Assets get recorded on the top or the left side of the balance sheet; liabilities and owners' equity are recorded on the bottom or the right side of the balance sheet.

The information on each company's general ledger is unique to that business; however, all companies classify their general ledger accounts as assets, liabilities or owners' equity. Businesses use more specific accounts within each classification, for example, "current assets" or "long-term liabilities," to organize and track their finances.

Assets

An asset is anything of value that your company owns — including cash. Assets get recorded on the balance sheet in terms of their dollar values. Remember, even if you used credit to purchase an asset, you still own it. Its full dollar value gets recorded on one side of the balance sheet as an asset, and the amount you owe gets recorded on the other side of the balance sheet as a liability. There are several types of assets:

•Current assets. These are assets with dollar amounts that continually change, for example, cash, accounts receivable, inventory or raw materials your company uses to make a product. They are listed on the balance sheet in order of their liquidity, or how fast they can be converted into cash.

•Investments. Companies, like individuals, can own securities such as stocks and bonds. Investments, like cash or property, are considered assets.

•Capital assets. Think of...