Business, Legal & Accounting Glossary
n. generally any item of property that has monetary value, including articles with only sentimental value (particularly in the estates of the dead). Assets are shown in balance sheets of businesses and inventories of probate estates. There are current assets (which includes accounts receivable), fixed assets (basic equipment and structures), and such intangibles as business good will and rights to market a product.
In business and accounting by asset is meant probable future economic benefits controlled by an entity as a result of past transactions or events and from which future economic benefits may be obtained.
Assets have three essential characteristics:
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.
It is important to understand that in an accounting sense an asset is not the same as ownership. In accounting, ownership is described by the term “equity,” (see the related term shareholders’ equity). Assets are equal to “equity” plus “liabilities.”
Assets = Liabilities + Owners’ Equity,
The accounting equation is the mathematical structure of the balance sheet.
Similarly, in economics, an asset is any form in which wealth can be held.
Probably the most accepted accounting definition of an asset is the one used by the International Accounting Standards Board. 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.”
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.
Current assets are cash and other assets expected to be converted to cash, sold, or consumed either in a year or in the operating cycle. These assets are continually turned over in the course of a business during normal business activity.
There are 5 major items included in current assets:
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.
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 four types of investments:
Different forms of insurance may also be treated as long term investments.
Also referred to as PPE (property, plant, and equipment), or tangible assets, these are purchased for continued and long-term use in earning profit in a business. 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.
These are also called capital assets in management accounting.
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.
This section includes a high variety of assets, most commonly:
In a lot of cases, this section is too general and broad, because assets could be classified into four above categories.
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This glossary post was last updated: 26th April, 2020 | 17 Views.