By Fraser Sherman Updated January 31, 2019
Accounting divides your company assets into two classes: current and long-term. Current assets include cash and anything you use up or convert to cash over the next 12 months. Typical examples are supplies or accounts receivable. Anything you plan to keep beyond a year is a long-term asset.
There are several kinds of asset in the long-term asset category, such as long-term investments, fixed assets and intangible assets.
Property, Plant and Equipment
Fixed assets are things you buy for your company's internal use rather than resale. Examples in this accounting category include land, buildings, cars, machinery and computers. The category is also known in accounting as "property, plants and equipment." The fixed-asset entry doesn't include assets such as office supplies or raw materials that you'll use up within a year. You record fixed assets on your company's balance sheet at the purchase price, marked down over time for depreciation.
Assets You Cannot See
Intangible assets are a different kettle of fish. They include such non-physical property as domain names, copyrights, trademarks, employment contracts, noncompete agreements and customer lists. They also include goodwill – the intangible benefits of having a positive reputation.
You only record the value of intangible assets when you buy them. Suppose rather than starting your own plumbing business, you buy an established local company. Part of the purchase price goes to intangibles, such as the company's goodwill and trademarks. If you start your own plumbing business and create your own trademarks, you don't assign them any value as assets.
Investments Held For More than One Year
Long-term investments are those you're going to hang onto for more than 12 months. A house you buy to flip in a few months wouldn't count, but if you plan to wait a few years it would qualify. Stocks and bonds your company plans to keep for more than a year fit this category too. This class of assets doesn't include things you use in your business operations. Land you buy for a new factory is a fixed asset, for instance, but it's not a long-term investment. These investments go on the balance sheet separately from other long-term assets.
Payments Made in Advance
A deferred charge is a payment in advance. This can include anything from paying your supplier before delivery to paying a lump sum to your insurer to cover the next 12 months. If the period covered is long enough, the deferred charge qualifies as a long-term asset. Typical deferred charges include prepaid rent, prepaid insurance and prepaid advertising.
You record the initial payment as an asset on the balance sheet. If you pay $60,000 in rent for the next two years, that's an asset because it guarantees you the use of the premises. Each month, you reduce the asset account and record that month's rent as an expense on the income statement. Otherwise, the huge expense of the initial payment would make your business look much worse off financially than it really is.
FAQs
assets with relatively long useful lives that are currently used in operating the business. For example, buildings, factories, automobiles, etc.
How do you calculate long-term assets in accounting? ›
The carrying value of a long term asset (also called the net book value) refers to the value of the asset on the company's books. The carrying value is the original cost of the asset less any accumulated depreciation.
What is a long-term asset in accounting? ›
Long-term assets (also called fixed or capital assets) are those a business can expect to use, replace and/or convert to cash beyond the normal operating cycle of at least 12 months. Often they are used for years.
What is an example of a long-term asset on the balance sheet? ›
A long-term investment is an account on the asset side of a company's balance sheet that represents the company's investments, including stocks, bonds, real estate, and cash.
What are current and long-term assets examples? ›
Examples of current assets include cash, marketable securities, inventory, and accounts receivable. Examples of noncurrent assets include long-term investments, land, property, plant, and equipment (PP&E), and trademarks.
What are long-term assets on the income statement? ›
Long-term assets are resources that a company expects to use or benefit from for more than one year, such as property, plant, equipment, intangible assets, and investments. Accounting for long-term assets involves recording their acquisition, depreciation, impairment, and disposal.
What is considered long term? ›
Something that is long-term has continued for more than a year or will continue for more than a year. Short-term interest rates are lower than long-term rates, because investors want higher rates the longer they lend their money.
Which is a long-term asset? ›
Long-term assets are tangible and intangible assets a company owns and uses for extended periods. This may include property, equipment, investments, product patents and software. Companies may choose to maintain assets for long periods because they might offer financial benefits for their operations.
What are long-term assets that depreciate? ›
Fixed assets are company-owned, long-term tangible assets, such as forms of property or equipment. These assets make up its day-to-day operations to generate income. Being fixed means they can't be consumed or converted into cash within a year. As such, they are subject to depreciation and are considered illiquid.
Which statement lists assets from current to long-term? ›
The balance sheet includes information about a company's assets and liabilities. Depending on the company, this might include short-term assets, such as cash and accounts receivable, or long-term assets such as property, plant, and equipment (PP&E).
Examples of long-lived tangible assets, typically referred to as and sometimes as fixed assets, include land, buildings, furniture and fixtures, machinery and equipment, and vehicles; examples of long-lived (assets lacking physical substance) include patents and trademarks; and examples of long-lived financial assets ...
What are current assets to long-term assets? ›
Current assets are short-term assets that are typically used up in less than one year. Current assets are used in the day-to-day operations of a business to keep it running. Fixed assets are long-term, physical assets, such as property, plant, and equipment (PP&E). Fixed assets have a useful life of more than one year.
What are the characteristics of a long-term asset? ›
Common characteristics of long-term assets include those a company has operated and/or maintained for more than a single fiscal year. Long-term assets are typically employed in the operation and maintenance of a business and are not for sale to the company's clientele or customer base.
Which is a long term asset? ›
Long-term assets are tangible and intangible assets a company owns and uses for extended periods. This may include property, equipment, investments, product patents and software. Companies may choose to maintain assets for long periods because they might offer financial benefits for their operations.
What are the examples of current and long-term assets? ›
Examples of current assets include cash, marketable securities, inventory, and accounts receivable. Examples of noncurrent assets include long-term investments, land, property, plant, and equipment (PP&E), and trademarks.
What are long-term assets as per income tax? ›
Capital assets such as land, building and house property shall be considered as long-term capital asset if the owner holds it for a period of 24 months or more (from FY 2017-18). Whereas, below-listed assets if held for a period of more than 12 months, shall be considered as long-term capital asset.
What are 3 types of assets? ›
Three of the main types of asset classes are equities, fixed income, and cash and equivalents. For individual investors, these are more commonly referred to as stocks, bonds and cash. An investor's asset allocation, or mix of asset types, is the foundation of portfolio construction.
