Assets are valuable resources that every business owns, Calculating your total assets is important to understand the financial health and value of your company,
In this comprehensive guide, we will walk through the key steps to calculate total assets for your small business.
What Are Assets?
Assets are economic resources that a business controls and owns that are expected to provide future benefits. Some examples of common small business assets include:
- Cash
- Accounts receivable
- Inventory
- Equipment
- Furniture
- Vehicles
- Buildings
- Land
Assets can be categorized into different types
Current Assets
These are assets that can be easily converted into cash within a year. Examples are cash, accounts receivable, inventory etc.
Fixed Assets
These are long-term tangible assets used in business operations. They aren’t easily converted to cash. Examples are equipment, machinery, buildings, furniture etc.
Intangible Assets
These assets lack physical substance. Examples are trademarks, patents, copyrights, goodwill, brand recognition etc.
Why Calculate Total Assets?
There are a few key reasons to calculate your total assets:
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It shows the total economic value of your business assets and their potential to generate future value. This gives you an idea of the size and health of your business.
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It allows you to compare your asset value over time to see growth.
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Banks or lenders may want to review your total assets to approve financing. More assets mean you can likely take on more debt.
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The total assets value is used in key financial ratios like return on assets and the debt-to-asset ratio. These ratios allow you to benchmark your business’ performance.
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If you are looking to sell your business, total assets help determine its market value.
How to Calculate Total Assets Step-By-Step
Follow this step-by-step guide to calculate your small business’ total assets:
Step 1: List All Your Assets
Make a list of all your business assets. Consider current assets, fixed assets, and intangible assets.
Some examples:
- Cash
- Accounts receivable
- Inventory
- Supplies
- Prepaid expenses
- Investments
- Property
- Equipment
- Vehicles
- Furniture
- Fixtures
- Software
- Trademarks
- Brand value
- Intellectual property
Make your list as comprehensive as possible. Review your accounting records, especially the balance sheet, to ensure you don’t miss any assets.
Step 2: Determine the Value of Each Asset
For each asset, determine its monetary value. Use the following tips:
- For current assets like cash and accounts receivable, use the balances from your accounting records.
- Value inventory using the current wholesale value. Use the lower of cost or market valuation method.
- For fixed assets like property or equipment, use the current fair market value. This may require an appraisal.
- Reduce the value of fixed assets by their accumulated depreciation.
- For intangible assets like trademarks, use the purchase or legal registration value.
Step 3: Organize Your Assets into Categories
Once you have the value of each asset, organize them into categories, such as:
- Current assets
- Long-term assets
- Property, plant and equipment
- Intangible assets
- Investments
This makes your total asset calculation easier to understand.
Step 4: Add the Value of All Assets
Add up the value of every single asset you listed out. This gives you the total asset value.
You can use a spreadsheet or accounting software to add up assets.
Step 5: Verify Your Calculation
To verify your total asset calculation is correct:
- Add up all liabilities.
- Add equity, which equals assets minus liabilities.
- Total assets should equal liabilities plus equity.
If not, recheck your asset values and calculations.
Total Assets Formula
The total assets formula is:
Total Assets = Current Assets + Long-term Assets + Intangible Assets
Or more simply:
Total Assets = Current Assets + Fixed Assets + Intangible Assets
Current assets are assets convertible to cash within a year. Fixed assets are tangible assets used in operations. Intangible assets lack physical form.
Total Assets Example
Let’s look at an example total asset calculation for a fictional small business.
Jenny’s Baked Goods has the following assets:
Current Assets
- Cash: $5,000
- Accounts Receivable: $1,500
- Inventory: $3,000
- Prepaid Expenses: $500
Fixed Assets
- Kitchen Equipment: $15,000
- Less Accumulated Depreciation: $3,000
- Delivery Van: $12,000
- Less Accumulated Depreciation: $2,000
- Store Furniture: $5,000
Intangible Assets
- Trademark: $1,000
Total Assets = Current Assets + Fixed Assets + Intangible Assets
Calculations:
- Current Assets = $5,000 + $1,500 + $3,000 + $500 = $10,000
- Fixed Assets = $15,000 – $3,000 + $12,000 – $2,000 + $5,000 = $27,000
- Intangible Assets = $1,000
- Total Assets = $10,000 + $27,000 + $1,000 = $38,000
Therefore, the total assets for Jenny’s Baked Goods is $38,000.
Tips for Calculating Total Assets
Follow these tips when calculating total assets for your small business:
- Perform the calculation at least annually to track growth.
- Use the most recent asset values – appraise fixed assets to ensure accurate valuation.
- Double check your addition to avoid mathematical errors.
- Ensure proper categorization of assets.
- Use accounting software to automatically calculate total assets.
- Verify total assets match liabilities plus equity.
- If selling your business, consider hiring an independent valuator.
Importance of Total Assets Calculation
Regularly calculating total assets is important for small businesses for the following reasons:
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It indicates the total economic resources your business has available to generate value. This shows the size and health of your operations.
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Banks or lenders will review total assets to make decisions about providing financing or loans. More assets generally mean increased borrowing capacity.
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It allows you to monitor asset growth over time. Sudden changes in total assets may indicate problems.
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Key ratios like return on assets and debt-to-asset use total assets in their formulas. These ratios let you benchmark your business performance.
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If selling your business, total assets help determine the market value along with intangible factors like goodwill.
Feel free to refer back to the instructions and examples in this article when you need to calculate your total assets. Just remember to list all your business assets, determine their value, categorize them, add everything up, and check your calculation against liabilities and equity.
What Is the Accounting Equation?
The accounting equation states that a company’s total assets are equal to the sum of its liabilities and its shareholders’ equity.
This straightforward relationship between assets, liabilities, and equity is considered to be the foundation of the double-entry accounting system. The accounting equation ensures that the balance sheet remains balanced. That is, each entry made on the debit side has a corresponding entry (or coverage) on the credit side.
The accounting equation is also called the basic accounting equation or the balance sheet equation.
- The accounting equation is considered to be the foundation of the double-entry accounting system.
- The accounting equation shows on a company’s balance sheet that a company’s total assets are equal to the sum of the company’s liabilities and shareholders’ equity.
- Assets represent the valuable resources controlled by a company. The liabilities represent its obligations.
- Both liabilities and shareholders’ equity represent how the assets of a company are financed.
- Financing through debt shows as a liability, while financing through issuing equity shares appears in shareholders’ equity.
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What Is a Real-World Example of the Accounting Equation?
Below is a portion of Exxon Mobil Corp.’s (XOM) balance sheet in millions as of Sept. 30, 2023:
- Total assets were $372,259
- Total liabilities were $164,726
- Total equity was $207,533
The accounting equation is calculated as follows:
$164,726 (total liabilities) + $207,533 (equity) = $372,259 (which equals the total assets for the period)
Assets on a Balance Sheet: Assets, Liabilities & Equity
What are total assets?
Total assets are the measure of anything a person or company owns that they can sell for cash at a later date. This can involve any equity that someone owns or any liability they owe. You can include liability, or debt, in this calculation because it often helps a company or individual purchase anything that they may own.
How do you calculate return on assets?
Most calculations for return on assets produce a decimal figure, so multiplying it by 100 represents the value as a percentage, which may be easier to read and interpret. For the example of a company with a return on assets of 0.5667, multiplying the solution by 100 produces a result of 56.67%, which is a high return on assets.
What is a total assets formula?
Total assets formula can be defined as: Assets are anything that the company owns, has economic value, and can be converted to cash. Current assets are assets that are expected to be converted to cash within one financial year, while non-current assets are held by a company for more than one year, and are not readily convertible into cash.
How do I calculate my total assets?
Let’s take a look at each step of how to calculate your total assets: A balance sheet is a financial statement that lists your company’s assets, liabilities, and equity in one place. To create a balance sheet, you’ll gather asset, liability, and equity information and then input the data accordingly.
