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Assets are items that your business owns which have commercial value and help to generate revenue for your business. Assets may be tangible in that they have physical characteristics such as inventory or office equipment, or they can be intangible assets without physical existence such as copyrights, patents or research and development. Assets are classified into two categories:

• Current assets: cash or other assets that would normally be consumed or converted into cash within twelve months, such as accounts receivable and inventory.
• Non-current assets: all assets that would not be consumed or converted into cash within twelve months, including land, buildings and equipment.

As most assets lose value over time through obsolescence, age or wear and tear they can also be reduced from an accounting point of view which is called depreciation.

Depreciation is a non cash expense which accounts for the reduction in value of the asset over its useful life. Depreciation also has the effect of lowering the company's reported earnings.

When calculating asset depreciation there are four factors that need to be taken into account:

1. The cost of the asset, including all necessary costs to bring the asset into use such as shipping and installation costs.
2. The asset's anticipated useful life.
3. The estimated residual value of the asset at the end of its useful life.
4. The method of calculating depreciation:

• Straight Line Method
• Units of Production based depreciation
• Accelerated Depreciation

The straight line method is the most common depreciation method for small business as it is the simplest to use. This method allocates the amount to be depreciated evenly over the useful life of the asset. It can be calculated as follows:

Straight Line Depreciation = (Cost - Residual value) ÷ Useful life