Assets – that’s an accounting speak for your handmade business term used by CPA’s, tax professionals, and business advisors for the things that your handmade business owns that has value. That’s why Assets are the first things that are listed in the Chart of Accounts.
Assets are divided into three categories:
When it comes to bookkeeping, accounting, taxes, and the IRS – nothing is ever quite as straightforward as one might think it should be, which often gives small business owner a major headache.
The three Asset categories are:
- Current Assets – thing that can be used or easily converted int cash (sold) within a single year.
- Other Assets – things that you’ve paid in advance that will be used or converted into cash in the future.
- Long-Term or Fixed Assets – Things that can be used or converted into cash (sold) after a year.
What are Assets in a handmade business and how are they numbered?
Assets are tricky. If you read last week’s blog post Chart of Accounts-Accounting Speak Your Handmade Business, you’ll remember that I said Asset accounts are numbered between 10000 and 19999 – well there is a definite numbering split as well.
Current Assets are numbered between 10000 and 13999 and include:
- Cash – I’m talking real cash that you keep handy (maybe in an envelope) for the occasional quick trip to the craft store for buttons.
- Money in the bank – this is the money that you make from selling your finished objects that you put into your business checking or savings accounts.
- Accounts Receivable – most handmade business owners probably won’t have Accounts Receivable – but think about a custom order that you’ve required a customer to give you a deposit on with the balance due on delivery. That balance due is an Accounts Receivable – even if it’s only for a few weeks.
Other Assets are numbered between 14000 and 14999 and include:
- Prepaid insurance – let’s say that you have a business liability insurance policy. You pay it in advance for the upcoming year. This is considered to be an Other Asset because it includes a future accounting period.
- Security Deposit – perhaps you rent a brick and mortar store or a studio and had to give the landlord a month or two of rent up front.
Long Term or Fixed Assets are numbered between 15000 and 19999 and include things that have a minimum cost (*$500.00* or more) that you could sell to generate cash if you had to. These types of assets include:
- Equipment – computer, spinning wheel, weaving loom, sewing machine, etc.
*Note: That minimum cost of $500.00 well that is a number that I just threw out there – you should talk to your CPA, tax preparer, or business advisor and see what your own amount should be.
That’s it for this week, I don’t want to give you a huge headache! 🙄
Next week, we’ll talk about Liabilities and what they are (or could be) in your handmade business.