Business accounting requires an understanding of assets. All businesses have assets. Assets are economic resources or items of value that can be exchanged for cash. Not all assets are the same, however. There are different types of assets, including non-operating assets. What are non-operating assets exactly, and how do they differ from operating assets?
Non-Operating Assets Defined
Non-operating assets are economic resources or items of value that aren’t used in a business’s core operations. As a business owner, you may rely on certain assets to facilitate your business’s money-making operations. Different businesses use different assets to make money. Assets that aren’t used to make money on behalf of your business are non-operating assets. They are known as “non-operating assets” because they aren’t used in your business’s operations. Rather, your business owns the assets for other purposes, such as appreciation.
Non-Operating vs Operating Assets
Assets can be classified as non-operating or operating depending on how they are used. Non-operating assets aren’t used in your business’s operations, whereas operating assets are used in your business’s operations.
Some of the most common types of non-operating assets include real estate, cash, accounts receivables, excess and unused equipment and vacant buildings. These are all economic resources or items of value, and you can exchange all of them for cash. Nonetheless, your business won’t use these economic resources in its operations, so they are classified as non-operating assets rather than operating assets.
Why Non-Operating Assets Are Important
Non-operating assets are important because they affect your business’s valuation. If your business has a lot of non-operating assets, it will be valued higher. A high valuation, of course, will allow you to secure more financing without giving up a large portion of your business’s equity.
Equity financing involves a valuation. If you want to obtain financing from an investor, you’ll have to agree to sell a portion of your business’s equity to the investor. The amount of money that the investor pays for your business, as well as the portion of the equity, will determine your business’s valuation. Business valuations are affected by non-operating assets. The more non-operating assets your business has, the higher your business’s valuation will be.
Like all assets, non-operating assets are tax-deductible. You can deduct the cost of non-operating assets from your business’s taxes. If you spend $100,000 on non-operating assets in a given year, you can typically deduct $100,000 from your business’s taxes.
Have anything else that you’d like to add? Let us know in the comments section below!