Is Equipment Considered an Asset?

Is equipment considered an asset or liability?

Equipment can be considered both a liability and an asset. For example, if you have a loan on your equipment, it is a liability.

As an asset, the equipment can help you increase sales. However, equipment is not a current asset, it’s a noncurrent asset. [Related: Complete Equipment Leasing Guide for Businesses]

What type of asset is equipment?

Equipment classifies as a noncurrent asset — or fixed asset. A noncurrent asset is a long-term investment that your company makes that is not likely to become cash within an accounting year or does not easily convert to cash.

Fixed assets generally apply to property, plant and equipment (PP&E). While noncurrent assets can lower cash flow, they can signal to investors that you are serious about growing your company and increasing your customers’ trust in your brand as you scale your line.

What sort of equipment falls under assets?

Equipment essential to your industry or business is typically considered an asset. The following are examples of typical equipment assets:

• Copy machines
• Postage meters
• Computers
• Telephones
• Fax machines
• Production line machinery
• Farm combines and tractors
• Lumber-cutting machinery
• Wrecking balls
• Pneumatic drills
• Cranes
• Robots
• Medical scanning equipment

How to maximize your equipment’s value

Since your equipment is a long-term asset that provides sustainability, it’s essential to manage it properly. Only use the equipment for its intended tasks. The more you think of equipment as an asset and less as a tool, the easier it will be to put in the time and money for the maintenance and upgrades it requires. 

Regular audits and inspections of your equipment can maximize its efficiency and life expectancy. By accurately managing your long-term assets, you can prevent extended shutdowns that impact your profits. Plus, you can protect your equipment’s value if you decide to upgrade or sell later.

What is the difference between current and noncurrent assets?

Your business can have both current and noncurrent assets. How quickly you plan to use the resource will determine whether to record it onto the balance sheet as a current asset or a noncurrent asset. 

Current assets

Current assets are set to be liquidated within the year. As a result, your company will utilize existing assets to pay bills and fund day-to-day expenses. Examples of current assets are as follows:

• Inventory (finished goods)
• Accounts receivable (electricity, cell phone)
• Cash (checking accounts)
• Foreign currency
• Prepaid expenses
• Marketable securities (certificates of deposit, high-yield savings accounts, money market accounts)
• Liquid assets
• Supplies (raw materials)

Here is the formula for calculating current assets:

Accounts receivable + Cash + Cash equivalents + Inventory + Liquid assets + Marketable securities + Prepaid expenses = Current assets

Noncurrent assets

A noncurrent asset will not have value until at least a fiscal year has passed. As a result, companies invest in noncurrent assets over several years to avoid huge losses during seasons of growth. Here are some standard noncurrent assets:

• Long-term investments
• Vehicles
• PP&E
• Patents and trademarks
• Goodwill (intangible asset)

Current and noncurrent assets have their own columns on an accounting spreadsheet. First, however, totaling them together and reconciling them against liabilities and equities needs to take place. 

How is equipment arranged on a balance sheet?

Your balance sheet will list equipment as noncurrent assets. Therefore, it is unnecessary to have a separate balance sheet just for your equipment.

Your company may gain assets by borrowing money from financial institutions and investors, following this formula:

Assets = Liabilities + Shareholders’ equity

The balance sheet is imperative to understanding your company’s current financial condition and engaging investors to accelerate the business’s growth. Creating an accurate balance sheet on your own can be overwhelming, though. If you cannot hire an in-house or contract accountant, you should investigate the best accounting software for your business. You can read about some of our top picks in our QuickBooks Online review, FreshBooks review, Oracle NetSuite review and Zoho Books review. 

What are some other noncurrent assets?

There are three main categories of noncurrent assets: tangible, intangible and natural resources. 

Tangible assets

Tangible assets are company-owned property or physical goods that are integral to the business operation. The value of such assets equate to its original cost minus any depreciation. However, tangible assets — such as land — may be void of depreciation because they tend to appreciate.

Intangible assets

Intangible assets are not physical in form but offer significant company value. Classifications of these assets include definite (like trademarks) or indefinite (such as brand recognition). 

Natural resources

Natural resources are also known as “wasting assets” because of their loss during consumption. These resources from the earth include fossil fuels, minerals, oil and timber.

Here is the natural resources balance sheet formula:

Cost of acquisition + Exploration + Development costs – Accumulated depletion = Natural resources assets

Whether your business uses the aforementioned current or noncurrent assets, make sure your accounting personnel record them properly on the balance sheet.

Maximizing your assets

For sustainable growth, businesses need to maximize their balance of assets and liabilities. To signal long-term growth potential to shareholders and potential investors, businesses also need to strike a balance between current and noncurrent assets. Investing in or upgrading equipment may be expensive; however, if it significantly improves your operations, then it can be worth the cost.

Tracking expenses related to asset management and equipment can be overwhelming. Using well-reviewed business accounting software or a reliable accountant is a must for businesses to properly arrange a balance sheet. When done properly, noncurrent assets listed on a balance sheet can signal to investors and shareholders your business is ready for continued growth.