How Do You Define an Asset?
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To define assets: An asset is a resource that a company owns that provides economic value.
This includes cash, equipment, property, rights or anything that a company can expect to generate revenue or reduce expenses.
There are four main types of assets.
The four categories are:
- Short Term (or Current) Assets: These are assets that a company expects to be able to convert into cash within one year. This includes cash and cash equivalents, inventory, accounts receivable, and some prepaid expenses.
- Financial Investments: Investments in assets and securities, such as stocks and bonds, also count towards a company’s assets.
- Fixed-Assets: These are long-lived items like equipment and real estate. In contrast to short term assets, fixed assets are expected to last beyond a year. A fixed asset is often a capital expenditure. Although the business will incur the expense year one, the expense will generally be incurred evenly over the useful lifetime of the asset on financial statement.
- Intangible Assets: Resources with value but without substance fall into this category, such as trademarks, patents, and intellectual property.
What Is an Asset vs Equity vs Liability?
Equity refers to the amount of money contributed by shareholders, plus retained earnings (or losses).
Liabilities are balances that effectively reduce a company’s overall spending power, such as outstanding loans or debt.
What Are Assets in Accounting?
What Does Asset Mean Practically? A Helpful Example
When a company spends cash on an asset, the value of the “assets” section of the balance sheet remains the same.
As an example, if a company spends $10,000 in cash on a new vehicle, their cash is reduced by $10,000 but they gain an asset worth the same amount.
Before accounting for depreciation, the total value of their assets remains the same.
Some examples of assets include:
- Property, plants, and equipment (PP&E), which covers everything from heavy machinery to building space
- Accounts receivable
- Cash and cash equivalents
- Anything else that counts towards a company’s overall net worth or spending power
Personal assets refers to assets owned personally by an individual. Examples would be things like a vehicle, home, savings account, equity owned, and anything else that counts towards one’s overall net worth.
As with business assets, personal assets can have varying degrees of liquidity.
Assets and Liabilities
Liabilities are essentially the opposite of an asset; they are anything that counts against a company’s overall net worth.
Examples would be debts taken on, such as by issuing bonds, wages owed, taxes owed, and so on. Liabilities are often measured against assets. If liabilities exceed assets, it indicates a financial problem.
Types Of Assets
The two major types of assets are long-term and short-term assets.
Long-term assets, which may also be called fixed-assets, is anything with an economically useful life of more than one year. A short-term asset, or current asset, is anything with an economically useful life of one year or less.
List of Assets
A list of company assets can usually be found on the balance sheet. The assets may be categorized by type, such as plants, property, and equipment (PP&E), long-term investments, intangible assets, and so on.
Assets in Spanish
Un activo es algo que proporciona valor económico a su propietario. Los activos pueden ser tanto a largo como a corto plazo. Los activos a corto plazo a menudo se denominan activos corrientes.
La liquidez es una medida de la facilidad con que un activo puede convertirse en efectivo. Un bono, por ejemplo, se puede canjear por efectivo más fácilmente que la maquinaria que se puede vender por efectivo.
Current assets, also called short-term assets, are a specific type of asset unique in the fact that they can only provide value for or within one year.
Examples would be short-term investments (that will be cashed with a year), inventory, and cash and cash equivalents.
Other Questions About Assets:
Yes, accounts receivable is an asset for accounting purposes.
Accounts receivable is an amount owed to a business from a company selling their product or service to a customer on credit.
Because an asset is “a resource that provides economic value,” and accounts receivable will soon be converted to cash which has economic value, accounts receivable is considered an asset on a company’s balance sheet.
Accounts receivable are funds that a company is owed by clients who have received a good or service, but have not yet paid.
For these funds to be a current asset, they must be expected to be received within a year.
An example of accounts receivable is Google Ads which allows businesses to incur an advertising bill and collect the funds after the ad placements have been used by the business.
The outstanding funds waiting to be collected will be included in accounts receivable.
The four main categories of assets examples are:
1. Short Term (or Current) Assets: These are assets that a company expects to be able to convert into cash within one year.This includes cash and cash equivalents, inventory, accounts receivable, and some prepaid expenses.
3. Fixed-Assets: These are long-lived items like equipment and real estate. In contrast to short term assets, fixed assets are expected to last beyond a year. A fixed asset is often a capital expenditure. Although the business will incur the expense year one, the expense will generally be incurred evenly over the useful lifetime of the asset on financial statements.
4. Intangible Assets: Resources with value but without substance fall into this category, such as trademarks, patents, and intellectual property.