What Are Assets? Accounting Speak for Handmade Business Owners

Assets is one of those accounting words that sounds fancier than it needs to.

In plain English, assets are the things your handmade business owns or controls that have value.

That might be money in your business checking account, inventory sitting on your shelves, a PayPal balance that hasn’t landed in your bank yet, or the sewing machine, kiln, loom, laptop, or display shelves you use to run your business.

In the last post, we talked about the Chart of Accounts and how it gives your bookkeeping some structure. Now we’re moving into the Balance Sheet side of that map, starting with assets.

And no, you do not need to become an accountant to understand this. You just need the words explained in a way that makes sense for an actual handmade business.

Just popping in? This is part 3 of our Accounting Speak in Your Handmade Business Series, to find and read about the entire series, click here.

Here’s what we’re talking about in this post:

• What are assets?
• Three basic types of assets
• Where assets show up in your Chart of Accounts
• Why doesn’t my bookkeeping spreadsheet show an Assets section?
• Why assets matter for handmade business owners
• A simple way to think about assets

Assets are what your business owns

When bookkeepers, tax pros, or accountants talk about assets, they are talking about things your business has that are worth something.

For a handmade business, assets might include:

• cash you keep on hand for small business purchases
• money in your business checking or savings account
• money sitting in PayPal, Stripe, Square, Shopify Payments, Etsy Payments, or another payment processor
• unpaid invoices from wholesale customers
• raw materials and supplies that become part of your products
• finished items waiting to be sold
• larger equipment you use in your business
• deposits you paid for a studio, shop space, or event space

Some assets are obvious. Money in the bank? Yep, that one makes sense.

Some assets are sneakier. Inventory is a big one. If you have bins of yarn, stacks of fabric, shelves of beads, soap curing on racks, or finished products waiting for your next market, those things still have value. They may not feel like money when they’re taking over your dining room, but in bookkeeping terms, they can still be business assets.

The three basic types of assets

Asset accounts are usually grouped into a few categories. You do not need to memorize these like you’re studying for a bookkeeping spelling bee, but it helps to understand the basic idea.

The three common asset categories are:

Current Assets
These are assets that are cash already or could usually turn into cash within a year.

Other Assets
These are assets that do not fit neatly into your everyday cash, bank, inventory, or equipment categories. For many small handmade businesses, this section may be pretty small or barely used.

Fixed Assets
These are larger business items you use for more than a year, like equipment, furniture, or fixtures.

Now let’s make that less textbook-y.

Current Assets in a handmade business

Current assets are the assets you are most likely to deal with on a regular basis.

These are things like cash, money in the bank, payment processor balances, invoices customers still owe you, and inventory.

Cash on hand

This is actual cash your business keeps around.

Maybe you keep a little cash box for craft fairs. Maybe you have a small envelope of business cash for quick supply runs. Maybe you need change for markets.

That cash still belongs to the business, so it counts as a business asset.

Business checking and savings accounts

This is the money sitting in your business bank accounts.

If you sell finished products and deposit that money into your business checking account, the balance in that account is an asset. Same thing for a business savings account where you set aside money for taxes, slower months, or future expenses.

This is usually the easiest asset category to understand because we’re talking about actual money.

Blessedly straightforward for once.

Payment processor balances

This one is easy to miss.

If you sell through Etsy, Shopify, Square, Stripe, PayPal, Faire, or another platform, there may be a delay between when the customer pays and when the money lands in your bank account.

During that in-between time, the money may still belong to your business, even if it is sitting in the payment processor account instead of your checking account.

For example, if you had a strong weekend at a craft show using Square, but the payout has not hit your bank yet, that balance may still be an asset.

This is one reason your sales reports, payment processor reports, and bank deposits do not always line up perfectly. Annoying? Yes. Suspicious? Not necessarily.

Accounts Receivable

Accounts Receivable means money customers owe you for sales you have already made or work you have already delivered.

This is not super common for every handmade business, especially if most of your customers pay at checkout. But it can happen with wholesale, consignment, custom work, or business-to-business sales.

Let’s say a boutique orders 20 handmade mugs from you. You deliver the mugs and send an invoice with payment due in 30 days. Until that boutique pays the invoice, the amount they owe you is Accounts Receivable.

In plain English: you made the sale, but you have not been paid yet.

That unpaid amount is still something of value to your business because you have the right to collect it.

Inventory

Inventory is where a lot of handmade business owners start muttering under their breath.

For handmade businesses, inventory can include materials, supplies that become part of the product, work in progress, and finished items waiting to be sold.

A yarn dyer might have undyed yarn, dyes, labels, and finished skeins.

A jewelry maker might have beads, wire, clasps, earring cards, and finished earrings.

A soap maker might have oils, fragrance, colorants, packaging, soap curing on racks, and finished bars ready for sale.

A sewist might have fabric, thread, zippers, interfacing, and finished bags or garments.

This is one of the biggest differences between bookkeeping for a handmade business and bookkeeping for a service business. A service business may not have much inventory at all. A maker can have a whole lot of business value sitting in bins, drawers, closets, shelves, and “I swear I know where everything is” piles.

Inventory matters because it affects your bookkeeping, your Cost of Goods Sold, and whether your numbers are showing what is really happening in your business.

You do not need to make inventory complicated on day one, but you do need to understand that materials and finished products are not the same thing as regular office expenses.

Other Assets in a handmade business

Other Assets is one of those categories that may or may not matter much in your business.

This section is usually for things your business paid for that still have future value but do not fit neatly into your normal current asset or fixed asset categories.

Prepaid insurance

If you pay for a full year of business insurance upfront, that payment may cover future months, not just the month you paid it.

Depending on how your books are set up, part of that payment may be treated as a prepaid asset and then moved into expense over time.

Now, before your eyes glaze over, please know this is exactly the kind of thing you can ask your tax pro or bookkeeper about. Not every tiny business needs to track prepaid expenses in the most detailed way possible, especially when you are just getting your bookkeeping cleaned up.

The point is simply this: sometimes you pay now for something your business will use later.

Security deposits

If you rent a studio, office, shop, or production space, you may have paid a security deposit.

That deposit is not the same thing as rent expense. Rent is money you pay to use the space. A security deposit is money you may get back later, assuming everything goes as planned and nobody decides the wall color you chose is a personal attack.

Because the deposit may come back to you, it can be listed as an asset.

Fixed Assets in a handmade business

Fixed assets are larger items your business owns and uses for more than a year.

These are usually bigger purchases, not every little tool, pen, basket, or roll of tape you buy.

Examples of fixed assets in a handmade business might include:

• a sewing machine
• longarm quilting machine
• a kiln
• laser cutter
• a pottery wheel
• commercial mixer
• a spinning wheel
• weaving loom
• a laptop or desktop computer used for the business
• display shelving or booth fixtures
• large tables or studio furniture

The key idea is that fixed assets are usually bigger-ticket items that help you run the business over time.

That does not mean every tool goes into Fixed Assets. A $12 pair of scissors, a $25 set of jewelry pliers, or a $40 folding table may simply be treated as an expense, depending on your bookkeeping setup and your tax pro’s guidance.

A $2,000 kiln? That is a different conversation.

Many businesses set a dollar amount, sometimes called a capitalization threshold, to decide when a purchase gets treated as a fixed asset instead of a regular expense. The old version of this post mentioned $500 as an example, but that number should not be treated as a rule. Your business may use a different amount, and this is one of those places where it is smart to ask your CPA, tax preparer, or business advisor what they recommend.

Fixed assets may also involve depreciation, which is the accounting way of spreading the cost of a larger asset over time.

And because I like you, we are not diving headfirst into depreciation in this post. That is how innocent people end up stress-eating cookies over a spreadsheet.

Where assets show up in your Chart of Accounts

In your Chart of Accounts, assets are usually listed first because they are part of the Balance Sheet side of your bookkeeping.

In many bookkeeping systems, asset accounts are numbered in the 10000 range. Your exact numbering may look different depending on your software, spreadsheet, or setup, but the general idea is the same.

Assets come before liabilities, equity, income, and expenses because they answer one of the big bookkeeping questions:

What does the business own or control that has value?

That question matters because your business is more than just what came in and went out this month.

Your Profit & Loss Report tells you about income and expenses.

Your Balance Sheet gives you a bigger picture of what your business owns, what it owes, and what is left.

Assets are the “what your business owns” part of that picture.

Why doesn’t my bookkeeping spreadsheet show an Assets section?

If you’re using a bookkeeping spreadsheet, you may not see a section called Assets anywhere.

That does not automatically mean you’re doing something wrong.

Most basic bookkeeping spreadsheets are built to track money in and money out. They usually focus on income, expenses, and maybe some inventory or tax tracking. They are not always designed to create a full Balance Sheet the way bookkeeping software does.

A bookkeeping software program may have separate asset accounts for things like:

• a business checking account
• business savings
• payment processor balances
• accounts receivable
• materials inventory
• finished goods inventory
• equipment

A spreadsheet may track some of those pieces in a more simplified way, or it may not use those accounting labels at all.

For example, your spreadsheet might have a tab for inventory, a place to track sales tax collected, or a register for money in and money out, but it may not pull everything together into an official Assets section.

That’s okay.

The goal at this stage is not to panic because your spreadsheet doesn’t look like QuickBooks. The goal is to understand what these accounting words mean so you can make better sense of your business numbers.

If you’re using spreadsheets, focus on knowing where your important information lives:

• How do you track your business bank activity?
• Where do you track payment processor deposits?
• How do you track materials or finished inventory?
• Where do you track larger equipment purchases?
• How do you track sales tax collected or money set aside for taxes?

Your spreadsheet bookkeeping system may not call these things “assets,” but some of the information may still be there.

And if your business grows to the point where you need a true Balance Sheet, more detailed inventory tracking, or more formal asset accounts, that may be a sign it’s time to look at bookkeeping software or get help from a bookkeeper or tax pro.

For now, do not let the word Assets send you into a bookkeeping tailspin. You’re learning the map. You do not have to rebuild the entire road system today.

If you’re using spreadsheets and want some of the asset categories already set up for you, the 10-Minute Bookkeeper includes a prebuilt Chart of Accounts, inventory tracking, equipment (asset) purchases sheets.

Why assets matter for handmade business owners

It is easy to think assets only matter if you have a big business, a retail shop, employees, or fancy equipment.

Not true.

Assets matter because they help you understand what is really going on in your business.

If you only look at your bank account, you might miss the value sitting in inventory.

If you only look at sales, you might forget that a chunk of your money is still sitting in a payment processor.

If you only track expenses, you might accidentally treat a large equipment purchase the same way you treat printer paper or packaging tape.

And if you make products, inventory can have a big impact on whether your numbers make sense.

That does not mean you need to track every bead, button, ounce, gram, yard, or inch in a way that makes you want to launch your laptop into the nearest pond. It means you need a bookkeeping setup that matches the reality of selling handmade products.

Because handmade business bookkeeping has a few extra moving parts. Inventory is one of them. Equipment can be another. Payment processors can be another. None of it has to be dramatic, but it does need to be understood.

A simple way to think about assets

Here is the plain-English version:

Assets are what your business has.

Liabilities are what your business owes.

Equity is what is left after you subtract what the business owes from what the business has.

That is the Balance Sheet side of your bookkeeping map.

For now, you do not need to make assets harder than they are. Start with the basics:

• Where is your business money?
• Do customers owe you money?
• Do you have inventory?
• Did you buy any larger equipment or fixtures for the business?
• Did you pay any deposits or prepaid costs that still have future value?

If you can answer those questions, you are already starting to understand assets in a way that is actually useful.

Next up in the Accounting Speak series, we’ll look at Liabilities — which is the bookkeeping word for what your handmade business owes.