Capital Assets Definition

Capital Assets are long-term assets, such as property, equipment, and investments, that are essential for operations and not intended for immediate sale.

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What are capital assets?

Capital assets are things that a business owns that aren’t cash in the bank — but are assets that the business owns to make money. They can be tangible or intangible. 

Examples of Capital Assets

Examples of capital assets include:

  • Land
  • Commercial buildings
  • Printers
  • Computers
  • Stocks
  • Bonds
  • Machinery
  • Equipment
  • Commercial vehicles
  • Physical stores

These are only a few examples of capital assets. Most anything that isn’t cash or inventory but makes or helps your business make money is a capital asset.

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Are capital assets and inventory the same thing?

Capital assets and inventory aren’t the same things. Both are used to make the business money, but the purpose and overall use of the assets are what sets them apart. 

Inventory makes the company money by being sold to the consumer. On the shelf, it’s not worth much. When a customer buys the product, that’s when the business makes money.  

In contrast, capital assets serve to make the business money in the following ways:

  • By appreciating in value over time
  • By helping the company provide goods or services to the consumer
  • By facilitating the manufacture of goods or inventory
  • By storing goods
  • By enabling the company to continue operations

There are other ways that a business benefits from having capital assets. For example, selling an unprofitable piece of property generates cash for your business. Selling such assets also provides an opportunity for a company to change locations or buy new equipment.

Capital Assets Benefits 

So, what are the benefits of acquiring capital assets? Here are some capital assets advantages:

  • Diversifies the assets that your business has on hand
  • Provides other avenues for generating cash when needed
  • May save your business money in taxes
  • Helps your business grow

One capital asset disadvantage is that it’s not in a readily usable form. In other words, they take time to convert into cash. Further, there’s a chance that the money you spend on a capital asset turns out to be a poor investment. Doing proper research ahead of time helps protect you against these types of losses. 

Summary: Capital Assets Definition

Capital assets are things that your business owns that generate money. The difference between capital assets and inventory is that you sell inventory to the consumer. In contrast, you don’t sell capital assets to the consumer. A business owner benefits from having capital assets because it diversifies their assets and can save them money on taxes.

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Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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Written by Team ZenBusiness

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