What is an asset?
An asset is a resource witheconomic valuethat owns or controls a person, company or country in the expectation that this will provide a future benefit.
Assets are reported on a company's balance sheet. They are classified as current, fixed, financial and intangible. They are purchased or created to increase the value of a company or benefit its operations.
An asset can be thought of as something that can generate cash flow, reduce costs or improve revenue in the future, whether it is production equipment or a patent.
Key learning points
- An asset is a resource of economic value that a person, company, or country owns or controls in the expectation that it will provide benefit in the future.
- Assets are reported on a company's balance sheet.
- They are purchased or created to increase the value of a company or benefit its operations.
- An asset is something that can generate cash flow, reduce costs or improve revenue, whether it is manufacturing equipment or a patent.
- Assets can be classified as current, fixed, financial or intangible.
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Understanding assets
An asset represents a financial resource owned or controlled by, for example, a company. An economic resource is something that can be scarce and has the ability to generate economic benefit by generating or reducing cash flows.
An asset can also represent access that other people or companies do not have. Furthermore, there may be a right or another form of accesslegally binding, meaning that financial resources can be used at a company's discretion. Its use can be excluded or limited by an owner.
For something to be considered an asset, a company must have a right to it as of the date of the company accounts.
Assets can be broadly divided into current (or current) assetsvast active, financial investments and intangible assets.
Types of assets
Current assets
In the accounts, some assets are referred to as current.Current assetsare short-term financial resources that are expected to be converted into cash or consumed within a year. Current assets include cash, receivables, inventories and miscellaneous prepaid expenses.
Although cash is easy to value, accountants periodically assess the recoverability of inventories and accounts receivable. If there are indications that a receivable may be uncollectible, it is classified as an impairment. Or as inventory becomes obsolete, companies can write off those assets.
Some assets are recorded on company balance sheets using the concept of historical cost. Historical cost represents the original cost of the asset when it was purchased by a company. Historical costs can also include costs (such as delivery and installation) incurred to integrate an asset into business operations.
Vaste active
Fixed assets are assets with an expected life of more than one year, such as installations, equipment and buildings. Called an accounting regulationdepreciationare converted into fixed assets as they age. It distributes the cost of the asset over time. The depreciation may or may not reflect the loss of earning capacity of the fixed asset.
Generally Accepted Accounting Principles (GAAP)enable depreciation in multiple ways. The straight-line method assumes that a fixed asset loses its valuein proportion to its useful life, Menaccelerated methodassumes that the asset loses its value more quickly in the first year of use.
Financial assets
Financial assets represent investments in the assets and securities of other institutions. Financial assets include equities, government and corporate bonds, preference shares and other hybrid securities. Financial assets are valued based on the underlying security and supply and demand in the market.
Intangible assets
Intangible assets are financial resources that have no physical presence. This includes patents, trademarks, copyrights and goodwill. Accounting for intangible assets varies depending on the type of asset. They can be depreciated or tested for impairment every year.
While an asset is something of financial value that is owned or controlled by a person or company, a liability is something that a person or company owes. A liability can be a loan, taxes owed, or accounts payable.
What is considered an asset?
When you look at an asset definition, you will typically find that it is something that provides a current, future or potential financial benefit to an individual or company. An asset is therefore something that you own or something that you owe. A $10 bill, a desktop computer, a chair, and a car are all assets. If you have loaned money to someone, that loan is also an asset because you owe that amount. For the person who owes it, the loan is an obligation.
What are examples of assets?
Personal assets can include a house, land, financial securities, jewelry, art, gold and silver, or your checking account. Assets can include items such as motor vehicles, buildings, machinery, equipment, cash and accounts receivable.
What are non-physical assets?
Non-physical or intangible assets provide a financial benefit even if you can't physically touch them. They are an important category of assets, including items such as intellectual property (such as patents or trademarks), contractual obligations, royalties and goodwill. Brand equity and reputation are also examples of non-physical or intangible assets that can be quite valuable.
Is work an added value?
No. Work is the work that people do and for which they are paid in wages or salaries. Labor is separate from assets, which are considered as suchcapital.
How do current assets differ from fixed assets?
The accounts categorize assets based on their time horizon for use. The current assets are expected to be sold or used within a year. Fixed assets, also known aslong-term assets, is expected to be in use for well over a year. Fixed assets are not easy to liquidate. As a result, fixed assets, unlike current assets, are depreciateddepreciation.
