Long Term Assets

Long Term Assets

When accounting for the home and more importantly a business, it is imperative to know the definition
of long term assets and how they affect your financial standing. This guide is meant to define long term
assets and give business owners clues as to how to develop long term assets of their own and keep records
so tax season is less stressful than normal.

What is a Long Term Asset?

A long term asset, by definition, is an item of value that your business will be using for more than a 12-month
period. It will carry over from year to year. It will not be converted to cash within one year of entry on the
business balance sheet. Below is a list and description of different long term assets.

Investments

When a company has long-term stock holdings in another corporation, this qualifies as a long term asset. Another
example of an investment is the cash value of any insurance policies on the business or individual. To learn about
small business investing, read information on
Forbes.com.

Land

When land is purchased by a company, the total value is based on the price at the time of purchase. This is the value listed
on the balance sheet and it is counted as a long term asset.

Buildings

Buying property for your business is a big step. Are you ready? You can read about the process of purchasing commercial real estate
here, but know that all buildings
purchased for your business are considered long term assets. While purchasing buildings and land are similar in that the total value is
based on the purchase price, there is one key difference. Buildings depreciate over time, but land does not. In addition to recording the
value of the building, long term asset tracking accounts for the building’s depreciation over its useful life span as well.

Leasing Improvements

If the business does not own property but only leases, any improvements made are considered a long term asset. In addition to tracking the
cost of all the improvements, depreciation is also accounted for in this case.

Vehicles

Vehicles purchased and used for business purposes are considered long term assets. Their value is recorded at the time of purchase, then
depreciation is taken into account based on years and mileage. Any costs charged in order to put the vehicle in service, such as insurance or
registration fees, are also considered a portion of the asset.

Furniture and Fixtures

A business isn’t all bare bones. Buying items in order to help the business run efficiently, including all furniture and fixtures, are considered
long term assets since they last from year to year. While their value is determined at purchase price, they also depreciate over time as well.

Equipment

Specialized equipment that helps the business run efficiently, from something as basic as a computer and printer to something as major as a forklift
all count as long term assets. Since eventually equipment will require replacement, it does depreciate over time as well.

Startup Costs

Even though business startup costs only happen in the initial stages, they are depreciated over time using a method called amortization. This would
include any paperwork, permits and legal fees needed to get and stay in business over a period of time.

In a somewhat different category, though treated the same through the amortization method, are patents and copyrights. Certain companies must pay to
own the rights to make and sell a product. Any patent charges and copyright fees count as long term assets.

Trust an Experienced Accountant

When you are not sure whether or not an item qualifies as a long term asset, consult with an experienced accountant. They can gather all the details
necessary to make the determination in a factually sound manner.

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