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.
In this post, we’ll break down this sometimes daunting financial terminology and provide you with a clearer understanding about what assets are (or could be) in your handmade, creative, or craft business.
Assets are divided into three (3) distinct categories.
When it comes to bookkeeping, accounting, taxes, and the IRS …….
Nothing is ever quite as straightforward as one might think it should be.
This often gives small business owner a major headache.
Let’s grasp a clear understanding of what Assets are. From current assets for quick cash to long-term investments, we decode accounting jargon, simplifying financial terminology. Empower your creative venture with a clear understanding of asset categories for your small businesses
The three Asset categories are:
- Current Assets: These are things that can be used or easily converted into cash (sold) within a single year.
- Other Assets: In this category, we include things that you’ve paid in advance that will be used or converted into cash in the future.
- Long-Term or Fixed Assets: Are things that can be used or converted into cash (sold) after a year.
Assets in Your Handmade Business – Decoding the Numbers
Assets are tricky. If you read our previous blog post, Demystifying the Chart of Accounts for Your Handmade Business, you might remember that Asset accounts are numbered between 10000 and 19999. There is a definite numbering system split as well.
Current Assets are numbered between 10000 and 13999:
- Cash: I’m talking about the 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: Money you make from selling your finished objects that you put into your business checking or savings accounts.
- Accounts Receivable: Not common in most handmade businesses. Think of it as the deposit a customer makes on a custom order, with the balance due on delivery. The amount due turns into an Accounts Receivable, even though you’ll get the rest in a few weeks.
- Inventory: The raw materials, supplies, and finished items that are used in or sold by your business. This includes your ever-growing yarn stash!
Other Assets are numbered between 14000 and 14999:
- Prepaid insurance: Imagine prepaying your business liability insurance for the upcoming year. The amount you prepay turns into an Other Asset. This is because it covers a future accounting period.
- Security Deposit: Money you pay a landlord upfront, if you’ve rented a physical brick and mortar store or a studio.
Long Term or Fixed Assets are numbered 15000 to 19999.
This category includes things that have a minimum cost (*$500.00* or more) that you could sell to generate cash. These types of assets include:
- Equipment: Computer, spinning wheel, weaving loom, sewing machine, etc.
- Furniture and Fixtures: Tables, shelves, display cases, etc. Used for showcasing and storing products.
*Note: That minimum cost of $500.00, well, that’s 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.
Ok, that’s it for now. I don’t want to give you a huge headache! 🙄
Next time, we’ll talk about Liabilities and what they are (or could be) in your handmade business.
[…] all for this time. Stay tuned for our next discussion on Assets and what they mean for your handmade […]
[…] is an Asset – meaning it is something that your business owns that has value and can be sold to raise […]