In financial accounting, an asset is an economic resource. Anything tangible or intangible that can be owned or controlled to produce value and that is held by a company to produce positive economic value is an asset. Simply stated, assets represent value of ownership that can be converted into cash (although cash itself is also considered an asset). The balance sheet of a firm records the monetary value of the assets owned by that firm. It covers money and other valuables belonging to an individual or to a business. One can classify assets into two major asset classes: tangible assets and intangible assets. Tangible assets contain various subclasses, including current assets and fixed assets. Current assets include inventory, while fixed assets include such items as buildings and equipment. 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 marketplace. Examples of intangible assets include goodwill, copyrights, trademarks, patents and computer programs, and financial assets, including such items as accounts receivable, bonds and stocks.
1 Formal definition 2 Characteristics
2.1 Accounting 2.2 Current assets 2.3 Long-term investments 2.4 Fixed assets 2.5 Intangible assets 2.6 Tangible assets 2.7 Comparison: current assets, liquid assets and absolute liquid assets
3 See also 4 References
An asset is a resource controlled by the entity as a result of past
events and from which future economic benefits are expected to flow to
the entity (Framework Par 49a).
One of the most widely accepted accounting definitions of asset is the
one used by the International
The probable present benefit involve 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 nonprofit 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.
Employees are not considered assets like machinery is, even though they can generate future economic benefits. This is because an entity does not have sufficient control over its employees to satisfy the Framework's definition of an asset. Resources that are expected to yield benefits only for a short time can also be considered not to be assets, for example in the USA the 12 month rule excludes items with a useful life of less than a year. Similarly, in economics an asset is any form in which wealth can be held. There is a growing analytical interest in assets and asset forms in other social sciences 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 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 is the mathematical structure of the balance sheet. It relates assets, liabilities, and owner's equity:
Marketable securities: Securities that can be converted into cash quickly at a reasonable price. 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 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 may also be treated as long term
Main article: Fixed asset
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, IT equipment, e.g., laptops, 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. An asset is an
important factor in a balance sheet.
These are also called capital assets in management accounting.
Main article: Intangible asset
Intangible assets lack of 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
Websites are treated differently in different countries and may fall
under either tangible or intangible assets.
Tangible assets are those that have a physical substance, such as
currencies, buildings, real estate, vehicles, inventories, equipment,
art collections, precious metals, rare-earth metals, Industrial
metals, and crops.
Current assets Liquid assets Absolute liquid assets
Bills receivable Bills receivable
Accrued incomes Accrued incomes Accrued incomes
Loans and advances (short term) Loans and advances (short term) Loans and advances (short term)
Trade investments (short term) Trade investments (short term) Trade investments (short term)
Trading account assets
^ a b O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. Upper Saddle River, New Jersey: Pearson Prentice Hall. p. 272. ISBN 0-13-063085-3. ^ J. G. Siegel, N. Dauber & J. K. Shim, The Vest Pocket CPA, Wiley, 2005. There 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 of the asset is used to determine the value shown on the balance sheet.
^ J. Downes, J. E. Goodman, Dictionary of Finance & Investment
Terms, Barron's Financial Guides, 2003
^ a b 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.
^ IFRS for SMEs. London: IASB (International