Asset

Accountancy
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In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset. Simply stated, assets represent ownership of value that can be 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.^[1] Two major asset classes are tangible assets and intangible assets. Tangible assets contain various subclasses, including current assets and fixed assets.^[3] Current assets include inventory, while fixed assets include such items as buildings and equipment.^[4]

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,^[4] and financial assets, including such items as accounts receivable, bonds and stocks.

Contents 1 Formal definition 2 Asset characteristics 2.1 Current assets 2.2 Long-term investments 2.3 Fixed assets 2.4 Intangible assets 2.5 Tangible assets 2.6 Comparison : Current Assets , Liquid Assets and Absolute Liquid Assets 3 References

Formal definition

• 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^[5](Framework Par 49).

Asset characteristics

It should be noted that - other than software companies and the like - employees are not considered as assets, like machinery is, even though they are capable of producing value.

• 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.

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 relates assets, liabilities, and owner's equity:

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

That is, the total value of a firms Assets are always equal to the combined value of its "equity" and "liabilities."

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.

In a company's balance sheet certain divisions are required by generally accepted accounting principles (GAAP), which vary from country to country.[8]

Current assets

Current assets are cash and other assets expected to be converted to cash, gold, 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:

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 noncollectable 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.

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:

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 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 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, such as currencies, buildings, real estate, vehicles, inventories, equipment, and precious metals.

Comparison : Current Assets , Liquid Assets and Absolute Liquid Assets

CURRENT ASSETS	LIQUID ASSETS	ABSOLUTE LIQUID ASSETS
STOCKS
PREPAID EXPENSES
DEBTORS	DEBTORS
BILLS RECEIVABLE	BILLS RECEIVABLE
CASH IN HAND	CASH IN HAND	CASH IN HAND
CASH AT BANK	CASH AT BANK	CASH AT BANK
ACCRUED INCOMES	ACCRUED INCOMES	ACCRUED INCOMES
LOANS & ADVANCES ( SHORT TERM)	LOANS & ADVANCES ( SHORT TERM)	LOANS & ADVANCES ( SHORT TERM)
TRADE INVESTMENTS ( SHORT TERM)	TRADE INVESTMENTS ( SHORT TERM)	TRADE INVESTMENTS ( SHORT TERM )

References