Assets

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Accountancy
Key concepts
Accountant · Bookkeeping · Trial balance · General ledger · Debits and credits · Cost of goods sold · Double-entry system · Standard practices · Cash and accrual basis · GAAP / IFRS
Financial statements
Balance sheet · Income statement · Cash flow statement · Equity · Retained earnings
Auditing
Financial audit · GAAS · Internal audit · Sarbanes–Oxley Act · Big Four auditors
Fields of accounting
Cost · Financial · Forensic · Fund · Management · Tax
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In financial accounting, assets are economic resources owned by business or company. Anything tangible or intangible that one possesses, usually considered as applicable to the payment of one's debts is considered an asset. Simplistically stated, assets are things of value that can be readily converted into cash (although cash itself is also considered an asset).^[1] The balance sheet of a firm records the monetary^[2] value of the assets owned by the firm. It is money and other valuables belonging to an individual or business. ^[3] Two major asset classes are tangible assets and intangible assets. Tangible assets contain various subclasses, including current assets and fixed assets.^[4] Current assets include inventory, while fixed assets include such items as buildings and equipment.^[5] Intangible assets are nonphysical resources and rights that have a value to the firm because they give the firm some kind of advantage in the market place. Examples of intangible assets are goodwill, copyrights, trademarks, patents and computer programs,^[5] and financial assets, including such items as accounts receivable, bonds and stocks.

Asset characteristics

Assets have three essential characteristics:

• The probable present benefit involves a capacity, singly or in combination with other assets, in the case of profit oriented enterprises, to contribute directly or indirectly to future net cash flows, and, in the case of not-for-profit organizations, to provide services;
• The entity can control access to the benefit;
• The transaction or event giving rise to the entity's right to, or control of, the benefit has already occurred.

It is not necessary, in the financial accounting sense of the term, for control of assets to the benefit to be legally enforceable for a resource to be an asset, provided the entity can control its use by other means.

It is important to understand that in an accounting sense an asset is not the same as ownership. Assets are equal to "equity" plus "liabilities."

The accounting equation relates assets, liabilities, and owner's equity:

Assets = Liabilities +Stockholder's Equity(Owners' Equity)

The accounting equation is the mathematical structure of the balance sheet.

Assets are listed on the balance sheet. Similarly, in economics an asset is any form in which wealth can be held.

Probably the most accepted accounting definition of asset is the one used by the International Accounting Standards Board ^[6]. The following is a quotation from the IFRS Framework: "An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise." ^[7]

Assets are formally controlled and managed within larger organizations via the use of asset tracking tools. These monitor the purchasing, upgrading, servicing, licensing, disposal etc., of both physical and non-physical assets.^{[clarification needed]} In a company's balance sheet certain divisions are required by generally accepted accounting principles (GAAP), which vary from country to country.

Current assets

Current assets are cash and other assets expected to be converted to cash, sold, or consumed either in a year or in the operating cycle, without disturbing the normal operations of a business. These assets are continually turned over in the course of a business during normal business activity. There are 5 major items included into current assets:

1. Cash and cash equivalents — it is the most liquid asset, which includes currency, deposit accounts, and negotiable instruments (e.g., money orders, cheque, bank drafts).
2. Short-term investments — include securities bought and held for sale in the near future to generate income on short-term price differences (trading securities).
3. Receivables — usually reported as net of allowance for uncollectable accounts.
4. Inventory — trading these assets is a normal business of a company. The inventory value reported on the balance sheet is usually the historical cost or fair market value, whichever is lower. This is known as the "lower of cost or market" rule.
5. Prepaid expenses — these are expenses paid in cash and recorded as assets before they are used or consumed (a common example is insurance). See also adjusting entries.

The phrase net current assets (also called working capital) is often used and refers to the total of current assets less the total of current liabilities.

Long-term investments

Often referred to simply as "investments". Long-term investments are to be held for many years and are not intended to be disposed of in the near future. This group usually consists of four types of investments:

1. Investments in securities such as bonds, common stock, or long-term notes.
2. Investments in fixed assets not used in operations (e.g., land held for sale).
3. Investments in special funds (e.g., sinking funds or pension funds).

Different forms of insurance may also be treated as long term investments.

Fixed assets

Also referred to as PPE (property, plant, and equipment), these are purchased for continued and long-term use in earning profit in a business. This group includes as an asset land, buildings, machinery, furniture, tools, and certain wasting resources e.g., timberland and minerals. They are written off against profits over their anticipated life by charging depreciation expenses (with exception of land assets). Accumulated depreciation is shown in the face of the balance sheet or in the notes.

These are also called capital assets in management accounting.

Intangible assets

Intangible assets lack physical substance and usually are very hard to evaluate. They include patents, copyrights, franchises, goodwill, trademarks, trade names, etc. These assets are (according to US GAAP) amortized to expense over 5 to 40 years with the exception of goodwill.

Websites are treated differently in different countries and may fall under either tangible or intangible assets.

Tangible assets

Tangible assets are those that have a physical substance and can be touched, such as currencies, buildings, real estate, vehicles, inventories, equipment and precious metals.

See also

Asset management (physical) Asset (economics) Asset valuation Assets inflation Balance sheet Commodity Financial markets Global assets under management Gold as an investment

Hidden asset Inflation tax Liability Lists of corporate assets Real estate Land banking Share (finance) Stockholders' deficit

Look up asset in Wiktionary, the free dictionary.

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