Assets are purchased or acquired items that have a long life to them and might be easily converted to cash if you need it. Assets include several different categories: cash, accounts receivable, fixed assets, other current assets, inventory, land, buildings, equipment, etc. For the artist, the main accounts you’ll be concerned with are cash, equipment, inventory, and possibly land/buildings if you have a studio outside your home.
Hopefully the first thing you did when you declared yourself as an artist was to set up a separate bank account for your art’s income and expenses — a place for you to make deposits and write checks. If you haven’t done this, please do so as soon as you can. It’s easier to keep your art bookkeeping separate from your personal if you’re set up this way.
Equipment or fixed assets is anything that helps you make your art that is a major purchase. This things will need to be depreciated, which basically means that they get old, need repairs, and will someday need replaced. A pottery wheel, kiln, camera, firing torches, lighting systems, computer hardware or software, and printers are some examples of what might be included in this category. There are some items that could either be listed as equipments or expensed outright. For example, painters will need to decide if they want to include things such as easels and brushes. These are expensive items but might be better expensed rather than depreciated over several years. I’ll talk more about depreciation when we get to income and expenses.
Inventory is all items that goes into the final product. This might be your clay, canvases, paint, beads, wire, metal, paper, glass, etc. This is another area that deserves more space, so we’ll come back to it in another post.
If you have a studio whether inside or outside of your home, there are many different ways to account for the costs of land and building. Land doesn’t depreciate, but your building will (if it’s not part of your home). If it’s a section of your home, it’s important that this be a space dedicated to making and selling your art if you want to take certain deductions. This is an area where it’s best to discuss this with your accountant. These laws are constantly changing (because, well let’s face it, there’s a lot of dishonesty in this area) so don’t even think about doing it yourself. Again, your time in the studio is more important that your time spent researching what the current laws are. Let someone who’s job it is to stay current do this for you.
If you sell your art to someone on a payment plan, then you have accounts receivable, which means that you are due money for work already done. It also takes your bookkeeping from a cash basis to an accrual basis. As scary as this sounds, for your average bookkeeping it doesn’t really matter whether you are cash or accrual. Record your income and expenses as you get them and leave the rest to your accountant. They are the masters at this and if your books are well-kept they will have no problem in preparing your tax return.
Now that I’ve said the really scary words (tax return), do just keep in mind that your tax return is nothing but a reconciliation of what you’ve done over the year. It is the final overview of how well you’re doing and lets you see where things can be tweaked. Don’t be afraid to use your time with your accountant to ask how your bookkeeping is doing and if they see any areas where it can be improved. Okay, tax season is very busy for accountants and they may want to reschedule for after April 15th, but generally if you’re doing okay and they don’t see any major issues, you’ll find out then in a couple minutes. Accountants love finding people interested in doing their books right and making their busy time easier. Believe me, it’s easier to be set up right from the beginning and do it right the first time than it is to clean it up later.
While there’s a lot more to assets than is listed here, just remember they are the things that help you work. Now, shouldn’t you be using your assets and getting to work?