People are Our Greatest Asset!
We have all heard a senior leader say this. We like the sentiment but of course, it’s inaccurate from an accounting perspective. Employees are not assets. Their wages and salaries are an expense and future obligations such as retirement benefits are liabilities.
Having taught business financial intelligence within many organizations now for many years, I am no longer surprised to hear that most mid-senior level leaders don’t understand various terms associated with assets such as: CURRENT assets, FIXED assets, INVESTMENT assets, or INTANGIBLE assets. How about we invest a few minutes and demystify those now if you’re not 100% clear?
First, assets are what the organization owns. CURRENT assets are those items the business owns that will be converted into cash (if not already cash) in less than 12 months - hence the term, “current.” FIXED assets are those items are tangible (they exist physically); are used in the normal operations of the business; are not held for resale and are permanent meaning they’re likely to last more than one year (they’re not “current”). FIXED assets are depreciated over their estimated useful life.
INVESTMENT assets are items the organization owns but ARE held for resale; for example, Newleaf is a staff training and development company - we’re not a commercial real estate company. So, if we bought a property or a piece of land, (for example, with the intent to sell it for a profit at some point in the future) that item would be listed on our balance sheet as an INVESTMENT asset. When we sell it, it comes off the balance sheet (as we no longer OWN it) and we make a profit or sustain a loss on disposal which impacts the income statement (aka the profit and loss account).
INTANGIBLE assets are those items the organization owns but do not exist physically. Examples of intangible assets include goodwill, copyrights, trademarks, royalties, and patents. They key to remember here is that INTANGIBLE assets (a) arise through acquisition and (b) are not depreciated, they’re amortized (same accounting principle, different terminology).
Homework: I dare you to call out in future a senior leader when s/he says: “People are our greatest asset.” Feel free to let me know how that goes for you!
ABOUT NEWLEAF TRAINING & DEVELOPMENT (newleaf-ca.com)
Newleaf Training and Development (based in Valencia) deliver seminars, keynotes, coaching and online to help people and organizations better manage themselves, lead others and build business financial intelligence.