Asset

From Wikipedia, the free encyclopedia Jump to: navigation, search This article is about the business definition. For other uses, see Asset (disambiguation .

In financial accounting, an asset is an economic resource. 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 value of ownership that can be converted into cash (although cash itself is also considered an asset).[1 Simply put, !an asset is something that puts money in your poc"et!.[# $he balance sheet of a firm records the monetary[% value of the assets owned by the firm. It is money and other valuables belonging to an individual or business.[1 $wo ma&or asset classes are tangible assets and intangible assets. $angible assets contain various subclasses, including current assets and fi'ed assets.[( )urrent assets include inventory, while fi'ed assets include such items as buildings and e*uipment.[+ Intangible assets are nonphysical resources and rights that have a value to the firm because they give the firm some "ind of advantage in the mar"et place. ,'amples of intangible assets are goodwill, copyrights, trademar"s, patents and computer programs,[+ and financial assets, including such items as accounts receivable, bonds and stoc"s.

Contents

! Formal definition " Asset characteristics

o o o o o o o

".! Assets in accounting "." #urrent assets ".$ %ong&term investments ".' Fi(ed assets ".) *ntangible assets ".+ Tangible assets "., #omparison : current assets , li-uid assets and absolute li-uid assets

$ .ee also ' /eferences

Formal definition
An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are e'pected to flow to the entity[- (.ramewor" /ar (0a).

Asset characteristics
/robably the most accepted accounting definition of asset is the one used by the International Accounting Standards 1oard.[2 $he following is a *uotation from the I.3S .ramewor"4 !An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are e'pected to flow to the enterprise.![5 $his means that4

The probable present benefit involves a capacity, singly or in combination 0ith other assets, in the case of profit oriented enterprises, to contribute directly or indirectly to future net cash flo0s, and, in the case of not&for&profit organi1ations, to provide services2 The entity can control access to the benefit2 The transaction or event giving rise to the entity3s right to, or control of, the benefit has already occurred.

,mployees are not considered to be assets, li"e machinery is, even though they are capable of generating future economic benefits. $his is because an entity does not have sufficient control over its employees to satisfy the .ramewor"6s definition of an asset. Similarly, in economics an asset is any form in which wealth can be held.

Assets in accounting
In the financial accounting sense of the term, it is not necessary to be able to legally enforce the asset6s benefit for *ualifying a resource as being an asset, provided the entity can control its use by other means. $he accounting e*uation is the mathematical structure of the balance sheet. It relates assets, liabilities, and owner6s e*uity4
Assets 4 %iabilities 5 #apital (0here #apital for a corporation e-uals 60ner3s 7-uity %iabilities 4 Assets & #apital #apital 4 Assets & %iabilities

$hat is, the total value of a firms Assets are always e*ual to the combined value of its !e*uity! and !liabilities.!

Assets are listed on the balance sheet. In a company6s balance sheet certain divisions are re*uired by generally accepted accounting principles (7AA/), which vary from country to country.[0 Assets can be divided into e.g. current assets and fi'ed assets, often with further subdivisions such as cash, receivables and inventory. Assets are formally controlled and managed within larger organi8ations via the use of asset trac"ing tools. $hese monitor the purchasing, upgrading, servicing, licensing, disposal etc., of both physical and non9physical assets.

Current assets
8ain article: #urrent asset

)urrent assets are cash and other assets e'pected 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. $hese assets are continually turned over in the course of a business during normal business activity. $here are + ma&or items included into current assets4
!. Cash and cash equivalents 9 it is the most li-uid asset, 0hich includes currency, deposit accounts, and negotiable instruments (e.g., money orders, che-ue, bank drafts . ". Short-term investments 9 include securities bought and held for sale in the near future to generate income on short&term price differences (trading securities . $. Receivables 9 usually reported as net of allo0ance for noncollectable accounts. '. Inventory 9 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, 0hichever is lo0er. This is kno0n as the :lo0er of cost or market: rule. ). Prepaid expenses 9 these are e(penses paid in cash and recorded as assets before they are used or consumed (common e(amples are insurance or office supplies . .ee also ad;usting entries.

:ar"etable securities Securities that can be converted into cash *uic"ly at a reasonable price $he 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
;ften referred to simply as !investments!. <ong9term investments are to be held for many years and are not intended to be disposed of in the near future. $his group usually consists of three types of investments4
!. *nvestments in securities such as bonds, common stock, or long&term notes.

". *nvestments in fi(ed assets not used in operations (e.g., land held for sale . $. *nvestments in special funds (e.g. sinking funds or pension funds .

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

Fixed assets
8ain article: Fi(ed asset

Also referred to as //, (property, plant, and e*uipment), these are purchased for continued and long9term use in earning profit in a business. $his group includes as an asset land, buildings, machinery, furniture, tools, I$ e*uipment, e.g., laptops, and certain wasting resources e.g., timberland and minerals. $hey are written off against profits over their anticipated life by charging depreciation e'penses (with e'ception of land assets). Accumulated depreciation is shown in the face of the balance sheet or in the notes. Asset is important factor in balance sheet $hese are also called capital assets in management accounting.

Intangible assets
8ain article: *ntangible asset

Intangible assets lac" of physical substance and usually are very hard to evaluate. $hey include patents, copyrights, franchises, goodwill, trademar"s, trade names, etc. $hese assets are (according to >S 7AA/) amorti8ed to e'pense over + to (? years with the e'ception of goodwill. @ebsites are treated differently in different countries and may fall under either tangible or intangible assets.

angible assets
$angible assets are those that have a physical substance, such as currencies, buildings, real estate, vehicles, inventories, e*uipment, and precious metals

Comparison ! current assets " liquid assets and absolute liquid assets
Current assets .tocks <repaid e(penses #ash in hand #ash in hand #ash in hand =ills =ills receivable receivable Liquid assets Absolute liquid assets

#ash at bank Accrued incomes

#ash at bank Accrued incomes

#ash at bank Accrued incomes

%oans and advances %oans and advances %oans and advances (short term (short term (short term Trade investments (short term Trade investments (short term Trade investments (short term