Asset

1 Overview
- 1.1 Characteristics
2 Classifications
3 External Links
- 3.1 Source
- 3.2 See Also

Overview

In accounting, an asset is anything owned which can produce future economic benefit. It is an economic resource controlled by an entity as a result of past transactions ore events from which future benefits may be obtained. Asset is listed on the balance sheet.

The International Accounting Standards Board defines asset as "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." 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.

Examples: cash, equipment, buildings, labor, land

Characteristics

Assets have three essential characteristics:

They embody a future benefit that 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 access to the benefit to be legally enforceable for a resource to be an asset, provided the entity can control its use by other means. In an accounting sense an asset is not the same as ownership. In accounting, ownership is described by the term "equity."

Assets = Owner's Equity + Liability

Classifications

Current Assets

Current assets are cash and other assets expected to be converted to cash, sold, or consumed either in the operating cycle. They are continually turned over in the course of a business during normal business activity.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. There are 5 major items included into current assets:

Cash: This is the most liquid asset, which includes currency, deposit accounts, and negotiable instruments (e.g., money orders, checks, bank drafts).
Short-term investments: These include securities bought and held for sale in the near future to generate income on short-term price differences (trading securities).
Receivables: These are usually reported as net of allowance for uncollectible accounts.
Inventory: This 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.
Prepaid expenses: These are expenses paid in cash and recorded as assets before they are used or consumed (a common example is insurance).

Long-Term Investments

Long-term investments are investments that are held for many years and are not intended to be disposed in the near future. Different forms of insurance may also be treated as long term investments. This group usually consists of four types of investments:

Investments in securities: Examples of these include bonds, common stock, or long-term notes.
Investments in fixed assets: These are investments that are not used in operations (e.g., land held for sale).
Investments in special funds: Examples of these include sinking funds or pension funds.
Investments in subsidiaries or affiliated companies.

Fixed Assets

Fixed assets are purchased for continued and long-term use in earning profit in a business, and can be referred to as PPE (Property, Plant, and Equipment), capital assets or tangible assets. This group includes 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). Accumulated depreciation is shown in the face of the balance sheet or in the notes.

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. Some assets such as websites are treated differently in different countries and may fall under either tangible or intangible assets.

External Links

Source

Source: Much of the material in this entry came originally from Wikipedia.