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In
financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such as businesses and corporatio ...
, an asset is any
resource Resource refers to all the materials available in our environment which help us to satisfy our needs and wants. Resources can broadly be classified upon their availability — they are classified into renewable File:Global Vegetation.jpg, Global ...

resource
owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive
economic value In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goo ...
. Assets represent value of
ownership Ownership is the state or fact of exclusive rights and control over property, which may be any asset, including an object, land or real estate, intellectual property, or until the Nineteenth Century, nineteenth century, slaves, human beings. Owner ...
that can be converted into
cash In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
(although cash itself is also considered an asset). The
balance sheet In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such as ...

balance sheet
of a firm records the monetaryThere are different methods of assessing the monetary value of the assets recorded on the Balance Sheet. In some cases, the ''Historical Cost'' is used; such that the value of the asset when it was bought in the past is used as the monetary value. In other instances, the present
fair market value The fair market value of property is the price at which it would change hands between a willing and informed buyer and seller. The term is used throughout the Internal Revenue Code The Internal Revenue Code (IRC), formally the Internal Revenue Code ...
of the asset is used to determine the value shown on the balance sheet.
value of the assets owned by that firm. It covers money and other valuables belonging to an individual or to a
business Business is the activity of making one's living or making money by producing or buying and selling products (such as goods and services). Simply put, it is "any activity or enterprise entered into for profit." Having a business name A trad ...

business
. Assets can be grouped into two major classes: tangible assets and
intangible assets An intangible asset is an asset In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive econom ...
. Tangible assets contain various subclasses, including
current asset In accounting Accounting or Accountancy is the measurement ' Measurement is the number, numerical quantification (science), quantification of the variable and attribute (research), attributes of an object or event, which can be used to compar ...
s and
fixed asset Fixed assets, also known as long-lived assets, tangible assets or property, plant and equipment (PP&E), is a term used in accounting Accounting or Accountancy is the measurement ' Measurement is the number, numerical quantification (science) ...
s.J. Downes, J. E. Goodman, ''Dictionary of Finance & Investment Terms'', Barron's Financial Guides, 2003 Current assets include
inventory Inventory () or stock () refers to the goods and materials that a holds for the ultimate goal of resale, production or utilisation. is a discipline primarily about specifying the shape and placement of stocked goods. It is required at differen ...
,
accounts receivable Accounts receivable, abbreviated as AR or A/R, are legally enforceable claims for payment held by a business for goods supplied or services rendered that customers have ordered but not paid for. These are generally in the form of invoices raised by ...
, while fixed assets include
buildings A building, or edifice, is a structure A structure is an arrangement and organization of interrelated elements in a material object or system A system is a group of Interaction, interacting or interrelated elements that act according to a se ...

buildings
and
equipmentEquipment most commonly refers to a set of tool A tool is an object that can extend an individual's ability to modify features of the surrounding environment. Although many animals use simple tools, only human beings, whose use of stone tool ...
. J. Downes, J. E. Goodman, ''Dictionary of Finance & Investment Terms'', Barron's Financial Guides, 2003; and J. G. Siegel, N. Dauber & J. K. Shim, ''The Vest Pocket CPA'', Wiley, 2005. Intangible assets are non-physical resources and rights that have a value to the firm because they give the firm an advantage in the marketplace. Intangible assets include goodwill,
copyrights Copyright is a type of intellectual property Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more ...
,
trademarks A trademark (also written trade mark or trade-markThe styling of ''trademark'' as a single word is predominantly used in the United States and Philippines only, while the two-word styling ''trade mark'' is used in many other countries around ...
,
patents A patent is a type of intellectual property Intellectual property (IP) is a category of property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depe ...
,
computer program In imperative programming, a computer program is a sequence of instructions in a programming language that a computer can execute or interpret. In declarative programming, a ''computer program'' is a Set (mathematics), set of instructions. A comp ...
s, and financial assets, including financial investments, bonds and
stock In finance, stock (also capital stock) consists of all of the shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities i ...

stock
s.


Formal definition

IFRS (International Financial Reporting Standards), the most widely used financial reporting system, defines: "An asset is a present economic resource controlled by the entity as a result of past events. An economic resource is a right that has the potential to produce economic benefits." The definition under US GAAP (Generally Accepted Accounting Principles used in the United States of America): "Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events."


Characteristics

Con 6 provides the following discussion of the nature of an asset: An asset has three essential characteristics:
(a) it embodies a probable future benefit that involves a capacity, singly or in combination with other assets, to contribute directly or indirectly to future net cash inflows,
(b) a particular entity can obtain the benefit and control others’ access to it, and
(c) the transaction or other event giving rise to the entity’s right to or control of the benefit has already occurred. This accounting definition of assets necessarily excludes employees because, while they have the capacity to generate economic benefits, an employer cannot control an employee. Similarly, in
economics Economics () is a social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interact ...

economics
, an asset is any form in which
wealth Wealth is the abundance of valuable financial asset A financial asset is a non-physical asset whose value is derived from a contractual claim, such as deposit (finance), bank deposits, bond (finance), bonds, and participations in companies' sh ...

wealth
can be held. There is a growing analytical interest in assets and asset forms in other
social science Social science is the branch A branch ( or , ) or tree branch (sometimes referred to in botany Botany, also called , plant biology or phytology, is the science of plant life and a branch of biology. A botanist, plant scientist o ...

social science
s too, especially in terms of how a variety of things (e.g., personality, personal data, ecosystems, etc.) can be turned into an asset.


Accounting

In the
financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such as businesses and corporat ...
sense of the term, it is not necessary to be able to legally enforce the asset's benefit for qualifying a resource as being an asset, provided the entity can control its use by other means. The
accounting equation The fundamental accounting equation, also called the balance sheet equation, represents the relationship between the assets, liability (accounting), liabilities, and Equity (finance), owner's equity of a person or business. It is the foundation for ...
is the mathematical structure of the
balance sheet In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such as ...

balance sheet
. It relates assets, liabilities, and owner's equity: :Assets =
Liabilities Liability may refer to: Law * Legal liability, in both civil and criminal law ** Public liability, part of the law of tort which focuses on civil wrongs ** Product liability, the area of law in which manufacturers, distributors, suppliers, re ...
+ Capital (which for a corporation equals ''owner's equity'') :Liabilities = Assets − Capital :
Equity Equity may refer to: Finance, accounting and ownership *Equity (finance), ownership of assets that have liabilities attached to them ** Stock, equity based on original contributions of cash or other value to a business ** Home equity, the differe ...
= Assets − Liabilities Assets are listed on the
balance sheet In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such as ...

balance sheet
. On a company's balance sheet certain divisions are required by
generally accepted accounting principles Publicly traded companies typically are subject to the most rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms opera ...
(GAAP), which vary from country to country. Assets can be divided into e.g. current assets and fixed assets, often with further subdivisions such as cash, receivables and inventory. 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.


Current assets

Current assets are cash and others that are expected to be converted to cash or consumed either in a year or in the operating cycle (whichever is longer), 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: #
Cash and cash equivalents Cash and cash equivalents (CCE) are the most liquid current assets found on a business's balance sheet In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and co ...
– it is the most
liquid asset In business Business is the activity of making one's living or making money by producing or buying and selling products (such as goods and services). Simply put, it is "any activity or enterprise entered into for profit." Having a busines ...
, which includes
currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" in the most specific sense is money Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the plentiful money bags handed t ...

currency
,
deposit account A deposit account is a bank account A bank account is a financial account maintained by a bank or other financial institution in which the financial transactions between the bank and a customer are recorded. Each financial institution sets the ...
s, and
negotiable instrument A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, whose payer is usually named on the document. More specifically, it is a document contemplated by or consisting of a c ...
s (e.g., money orders, cheque, bank drafts). # – include securities bought and held for sale in the near future to generate income on short-term price differences (trading securities). # Receivables – usually reported as net of allowance for non-collectable accounts. #
Inventory Inventory (American English American English (AmE, AE, AmEng, USEng, en-US), sometimes called United States English or U.S. English, is the set of varieties of the English language native to the United States. Currently, American English ...
– trading these assets is a normal business of a company. The inventory value reported on the
balance sheet In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such as ...

balance sheet
is usually the historical cost or fair market value, whichever is lower. This is known as the "
lower of cost or market Lower of cost or market (LCM or LOCOM) is a conservative Conservatism is an aesthetic Aesthetics, or esthetics (), is a branch of philosophy that deals with the nature of beauty and taste (sociology), taste, as well as the philosophy ...
" rule. #
Prepaid expense A deferral, in '' accrual accounting'', is any account where the income or expense is not recognised until a future date (accounting period An accounting period, in bookkeeping Bookkeeping is the recording of financial transactions, ...
s – these are expenses paid in cash and recorded as assets before they are used or consumed (common examples are insurance or office supplies). See also
adjusting entries In accounting/accountancy, adjusting entries are general journal, journal entries usually made at the end of an accounting period to allocate income and expense, expenditure to the period in which they actually occurred. The revenue recognition pri ...
.
Marketable securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any fo ...
: Securities that can be converted into cash quickly at a reasonable price. The phrase ''net current assets'' (also called ''
working capital Working capital (abbreviated WC) is a financial metric which represents available to a business, organization, or other entity, including governmental entities. Along with fixed assets such as plant and equipment, working capital is considered a ...
'') is often used and refers to the total of current assets less the total of current
liabilities Liability may refer to: Law * Legal liability, in both civil and criminal law ** Public liability, part of the law of tort which focuses on civil wrongs ** Product liability, the area of law in which manufacturers, distributors, suppliers, re ...
.


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 three types of investments : # Investments in securities such as bonds, common stock, or long-term notes. # Investments in fixed assets not used in operations (e.g., land held for sale). # Investments in special funds (e.g. sinking funds or pension funds). Different forms of
insurance Insurance is a means of protection from financial loss. It is a form of risk management Risk management is the identification, evaluation, and prioritization of risk In simple terms, risk is the possibility of something bad happening. ...

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 to earn
profit Profit may refer to: Business and law * Profit (accounting) Profit, in accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic en ...
in a business. This group includes
land Land is the solid surface of Earth that is not permanently submerged in water. Most but not all land is situated at elevations above sea level (variable over geologic time frames) and consists mainly of Earth's crust, crustal components such a ...
,
building A building, or edifice, is a structure with a roof and walls standing more or less permanently in one place, such as a house or factory. Buildings come in a variety of sizes, shapes, and functions, and have been adapted throughout history for a ...

building
s,
machinery A machine is any physical system with ordered structural and functional properties. It may represent human-made or naturally occurring device molecular machine A molecular machine, nanite, or nanomachine is a molecular component that produc ...

machinery
,
furniture Furniture refers to movable objects intended to support various human activities such as seating (e.g., chairs, stools, and sofas), eating (table (furniture), tables), and sleeping (e.g., beds). Furniture is also used to hold objects at a con ...

furniture
,
tool A tool is an object that can extend an individual's ability to modify features of the surrounding environment. Although many animals use tool use by animals, simple tools, only human beings, whose use of stone tools dates back Paleolithic, hun ...

tool
s, IT equipment (e.g., laptops), and certain wasting resources (e.g., timberland and
mineral In geology and mineralogy, a mineral or mineral species is, broadly speaking, a solid chemical compound with a fairly well-defined chemical composition and a specific crystal structure that occurs naturally in pure form.John P. Rafferty, ed. (2 ...

mineral
s). They are written off against
profit Profit may refer to: Business and law * Profit (accounting) Profit, in accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic en ...
s over their anticipated life by charging
depreciation In accountancy, depreciation refers to two aspects of the same concept: first, the actual decrease of fair value of an asset, such as the decrease in value of factory equipment each year as it is used and wear, and second, the allocation in a ...

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 asset A capital asset is defined to include property of any kind held by an assessee, whether connected with their business or profession or not connected with their business or profession. It includes all kinds of property, movable or immovable, tangible ...
s in
management accounting In management accounting or managerial accounting, managers use accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such a ...
.


Intangible assets

Intangible assets lack physical substance and usually are very hard to evaluate. They include
patent A patent is a type of intellectual property Intellectual property (IP) is a category of property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depe ...

patent
s,
copyright Copyright is a type of intellectual property Intellectual property (IP) is a category of property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. ...

copyright
s,
franchises Franchise may refer to: Business and law * Franchising, a business method that involves licensing of trademarks and methods of doing business to franchisees * Franchise, a privilege to operate a type of business such as a cable television pro ...
&
license A license (American English American English (AmE, AE, AmEng, USEng, en-US), sometimes called United States English or U.S. English, is the set of variety (linguistics), varieties of the English language native to the United States. Cur ...

license
s, goodwill,
trademark A trademark (also written trade mark or trade-mark) is a type of intellectual property Intellectual property (IP) is a category of property Property is a system of rights that gives people legal control of valuable things, and also r ...

trademark
s,
trade name A trade name, trading name, or business name is a pseudonym A pseudonym () (originally: ψευδώνυμος in Greek) or alias () is a fictitious name that a person or group assumes for a particular purpose, which differs from their original ...
s, etc. These assets are (according to US GAAP) amortized to expense over 5 to 40 years with the exception of goodwill.
Website A website (also written as web site) is a collection of web page A web page (or webpage) is a hypertext Hypertext is text displayed on a or other with references () to other text that the reader can immediately access. Hyperte ...

Website
s 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, such as
currencies A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" in the most specific sense is money Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the plentiful money bags handed t ...

currencies
,
buildings A building, or edifice, is a structure A structure is an arrangement and organization of interrelated elements in a material object or system A system is a group of Interaction, interacting or interrelated elements that act according to a se ...

buildings
,
real estate Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more genera ...

real estate
,
vehicles A vehicle (from la, vehiculum) is a machine A machine is any physical system with ordered structural and functional properties. It may represent human-made or naturally occurring device molecular machine that uses Power (physics), power ...

vehicles
,
inventories Inventory (American English American English (AmE, AE, AmEng, USEng, en-US), sometimes called United States English or U.S. English, is the set of varieties of the English language native to the United States. Currently, American English i ...
,
equipmentEquipment most commonly refers to a set of tool A tool is an object that can extend an individual's ability to modify features of the surrounding environment. Although many animals use simple tools, only human beings, whose use of stone tool ...
, art collections,
precious metals Precious metals are rare, naturally occurring metal A metal (from Ancient Greek, Greek μέταλλον ''métallon'', "mine, quarry, metal") is a material that, when freshly prepared, polished, or fractured, shows a lustrous appearance ...
,
rare-earth metals The rare-earth elements, also called the rare-earth metals or (in context) rare-earth oxides, or the lanthanides (though yttrium and scandium are usually included as rare-earths) are a set of 17 nearly indistinguishable lustrous silvery-white s ...
, Industrial metals, and crops. The physical health of tangible assets deteriorate over time. As a result, asset managers use
deterioration modeling File:Schematic deterioration of an asset over time.png, 280x280px, Schematic deterioration of an asset over time. The increase in performance indicators represent a maintenance action. Deterioration modeling is the process of modeling and predicti ...
to predict the future conditions of assets.
Depreciation In accountancy, depreciation refers to two aspects of the same concept: first, the actual decrease of fair value of an asset, such as the decrease in value of factory equipment each year as it is used and wear, and second, the allocation in a ...

Depreciation
is applied to tangible assets when those assets have an anticipated lifespan of more than one year. This process of depreciation is used instead of allocating the entire expense to one year. Tangible assets such as art, furniture, stamps, gold, wine, toys and books are recognized as an asset class in their own right.Downes, John; Goodman, Jordan Elliot. ''Finance and Investment Handbook'', Sixth Edition, Barron's Educational Series, Inc., 2003. Many high-net-worth individuals will seek to include these tangible assets as part of their overall asset portfolio. This has created a need for tangible asset managers.


Wasting asset

A wasting asset is an asset that irreversibly declines in value over time. This could include vehicles and machinery, and in financial markets, options contracts which continually lose time value after purchase. Mines and quarries in use are wasting assets. An asset classified as wasting may be treated differently for tax and other purposes than one that does not lose value; this may be accounted for by applying
depreciation In accountancy, depreciation refers to two aspects of the same concept: first, the actual decrease of fair value of an asset, such as the decrease in value of factory equipment each year as it is used and wear, and second, the allocation in a ...

depreciation
.


Comparison: current assets, liquid assets and absolute liquid assets


See also

*
Assets under management In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money available ...
(AUM)


References

{{Authority control Accounting terminology Finance