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The first category of accounts on the balance sheet is the company’s assets. Cash accounts and inventory are listed as current assets. Next, long-term assets are accounted for. These are things owned that are not easily used for immediate needs.
In taking into account long-term assets, depreciation of the value of these assets needs to be considered. Depreciation reduces the value of a tangible asset over a set number of years and records an expense for that asset as it is depreciated. This is an important business management tool to easily track the life span of assets. Calculating depreciation allows you to determine the remaining useful time of your assets and to budget for replacement and repairs.
You want any asset account and it’s depreciation account listed next to each other on the balance sheet. This way anyone looking at the balance sheet will easily see the true value of the asset. The depreciation account is always a negative number.
Primary Long-Term Asset Accounts & Depreciation
- Land: This is one of the few long-term assets that doesn’t depreciate. Its cost is separated from the cost of buildings or other structures on it.
- Buildings: List the value of any buildings the business owns.
- Accumulate Depreciation-Building: Because buildings are a depreciable asset, add a line to track the depreciation.
- Leasehold Improvements: Facilities the company leases are listed here. Record funds spent on improving the property.
- Accumulated Depreciation-Leasehold Improvements: Note the depreciation of any improvements made to the lease property.
- Vehicles: List all cars, trucks and other vehicles the business owns. Base the number on the vehicle’s current market value at the time it’s put into company service.
- Accumulated Depreciation-Vehicle: Track the depreciation of all company-owned vehicles.
- Furniture and Fixtures: All furniture and fixtures in offices, warehouses and retail stores.
- Accumulated Depreciation-Furniture and Fixtures: Record the depreciation from wear and tear on these assets.
- Equipment: Track equipment like computers, copiers, cash registers you expect to use for the business for one year.
- Accumulated Depreciation-Equipment: Record the depreciation on business equipment.
- Organization Costs: Record start-up expenses. These are intangible assets (not physical objects) that cannot be written off all in one year. For example, licenses, patents, trademarks and brand names etc.
- Amortization-Organization Costs: With a tax advisor you can determine how to write off amortization expenses where you decrease the value of intangible assets.
- Deposits: List deposits made for rental property, to open an utility account or anything else to take care of other business needs. It is considered an asset because it is money that will eventually be returned to the business. When it is returned, the amount is subtracted from this account and added to one of the cash accounts.
- Other Assets: Functions as a catchall for any other asset that can’t be categorized in the above accounts.