An Asset is defined as any item that has an economic value owned by a person or by a corporation that can be converted to cash. Some examples of assets are: cash – your bank account, accounts receivable – monies owed to you by clients, inventory, furniture and equipment, vehicles, property, and prepaid items. There are other assets like goodwill, payroll advances, leasehold improvements, it really depends on the type of business you have as to the type of assets you may or may not have. Not all businesses will have the same assets but there is a structured approach to recording assets and the types of asset accounts.
Understanding what an asset is and how to account for it will make it easier for you to record an item and make it easier for the person responsible for filing your taxes. At what point does a cash outflow for an item become an expense and not an asset. Understanding the accounting rules with guidance from an accounting specialist will help you record an item properly when purchased. Creating procedures to account for assets versus expenses will help you and your staff approach these items with ease.
As an example: the purchase of an office printer. Is it an expense or an asset? It could be either. There is a dollar amount associated with the determination of expense or asset. If the printer was a used item and purchased for $20 you would likely not classify it as an asset but as an expense. Most asset categories have a dollar limit associated with it that separates what is worth the effort of calculating annual depreciation and these amounts are government approved amounts. Your accounting specialist can determine for you what dollar amount among other things determines asset or expense.
Regardless of whether an item purchased is an asset or expense the cash outflow must still be reflected on your Cash Flow Report if paid by cash.