1. List Your Assets
To determine your business’s total assets, start by identifying the assets you have. Assets are any resources that hold financial value for a business. Begin by listing the value of current assets, which are easily convertible to cash. This includes cash itself, accounts receivable (money owed to you), and inventory.
Then, enumerate the value of fixed assets, which are not as readily converted to cash, such as real estate and machinery. Additionally, include the value of long-term investments like stocks and bonds. Finally, assess the value of intangible assets—these are non-physical resources of financial value, such as business reputation. Common assets in small businesses include:
- Cash
- Accounts receivable (money owed to you)
- Customer deposits
- Office furniture and equipment
- Cell phones
- Computer hardware and software
- Tools, machinery, and equipment
- Vehicles
- Real estate (buildings, etc.)
- Lease agreements and improvements to leased spaces
- Inventory
- Investments that mature in less than 90 days (e.g., stocks, U.S. treasuries, bonds, mutual funds)
- Pre-paid insurance
- Intellectual property (e.g., know-how)
- Brand equity (recognition)
- Company reputation
- Copyrights
- Trademarks
- Patents
- Franchises
- Licensing agreements
- Domain names
- Employment contracts
- Customer lists
- Client relationships
2. Create a Balance Sheet
A balance sheet is a crucial financial document that provides an overview of a company’s assets, liabilities, and equity (net worth) at a specific point in time. It is instrumental in calculating your total assets and understanding your business’s financial position.
Step 1: Download a Template
For those new to business, creating a balance sheet can be made simple by using tools like Excel.
Step 2: Organize Your Assets
Take the assets you identified in the first step and input them into the template. Ensure you categorize them correctly into groups such as current assets, fixed assets, and other assets. This methodical arrangement will help in better financial analysis and clarity.
Step 3: Understand the Accounting Period
A balance sheet represents the financial standing of your business during a specific period. It could be for the last financial year, quarter, or month. Always include the value of all assets, including long-term assets, to ensure accuracy.
Step 4: Use Accounting Software
While manual preparation is feasible, using accounting software like Vantazo can simplify the process and enhance precision. Software often automates the inclusion of assets through your journal entries, although some may need to be entered manually.
3. Add Up Your Assets
Accounting software will automatically add up all your assets for you to find the final amount—total assets. If you’re using a template in Excel or similar programs, you will need to manually add up your assets. This free assets calculator will assist you in this process.
For example, consider a general contractor who has $5,000 in cash in his business bank account. He also has $3,000 in unbilled revenue for an ongoing job, where the total contract is worth $5,000, and he has already billed $2,000. Additionally, he has another future contract valued at $2,000. His equipment is worth $1,000, and he has investments amounting to $2,000. Here’s the breakdown:
- Cash: $5,000
- Accounts receivable: $3,000
- Contracts: $2,000
- Equipment: $1,000
- Investments: $2,000
Adding these amounts together, the general contractor’s total assets amount to $13,000:
$5,000 + $3,000 + $2,000 + $1,000 + $2,000 = $13,000 in total assets.
4. Check the Basic Accounting Formula
In double-entry bookkeeping, there’s an accounting formula used to verify the financial health of a business, which can also confirm if your total assets figure is accurate. According to The Balance, this formula is:
Total Liabilities + Equity = Total Assets
Equity represents the net worth of a company, also known as capital, while liabilities refer to what the business owes, such as loans, taxes, or operating expenses. Using this formula, your total liabilities plus equity should equal your total assets.
You can manually check this by filling out the liabilities and equity sections in your balance sheet or let accounting software handle it for you. For detailed instructions, see this article on how to calculate liabilities.
If the equation doesn’t balance, you should double-check your figures. In the following example, total assets amount to $18,724.26, and liabilities plus equity also equals $18,724.26, indicating that the total assets figure is correct because the equation balances.
What Is the Formula for Assets?
The formula to determine total assets is straightforward:
Total Liabilities + Equity = Total Assets
This fundamental accounting equation illustrates how to calculate the total assets of a business. By summing up all liabilities and equity, you can ascertain the total asset value of the company, ensuring an accurate financial snapshot.
Debt to Asset Ratio
Another crucial metric related to assets is the debt-to-asset ratio. This ratio indicates the proportion of a company’s assets that have been financed with borrowed money. For instance, if a business acquires new equipment using a line of credit, this indebtedness will be reflected in the debt-to-asset ratio.
The ratio is presented as a percentage. A higher percentage signifies that a larger portion of the company’s assets are financed through debt, which can be a red flag. High debt levels increase the risk of bankruptcy or insolvency—situations where the business may struggle to meet its debt obligations.
To calculate this ratio, use the following formula:
Total Liabilities / Total Assets = Debt to Asset Ratio
For example, if a small business has total liabilities of $1,000 and total assets of $2,000, the ratio would be calculated as follows:
$1,000 / $2,000 = 0.5 or 50%
This indicates that 50% of the business’s assets are funded by debt. If you find these calculations challenging, there are free debt-to-asset ratio calculators available that can simplify the process.
What Is Included in Total Assets?
Total assets encompass all items of value that a business owns. This includes cash, accounts receivable (funds owed to the business), inventory, equipment, and tools. Refer to the initial steps of identifying common small business assets for a comprehensive list.
To determine the total assets on a balance sheet, take the following steps:
- Categorize Assets: Start by dividing assets into categories such as current assets (easily convertible to cash) and fixed assets (less liquid, such as property and equipment).
- Calculate Total Value: Sum the value of all assets within each category to derive the total assets figure.
