Asset
SmallBusiness.com: The free small business resource
Contents |
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 or events from which future benefits may be obtained. Asset is listed on the balance sheet.
The plural use of the word, assets, typically refers to the entire property of a person, association, corporation, or estate. Examples: cash, equipment, buildings, labor, land
Current Assets
In accounting, 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.
See Also
External Links
