What are Assets in Accounting

What are Assets in Accounting

What are Assets in Accounting

In accounting, the assets of a company are its possessions and properties. Assets are items of economic value that an individual, business, or nation owns or governs with the aim of future benefit. Assets are listed on a company’s balance sheet and are purchased or developed to increase a firm’s value or benefit the firm’s operations.

An asset is a valuable resource that a company can use to generate revenue. There are many different types of assets, and each type has its own unique characteristics. In accounting, it’s important to classify assets correctly so that you can track them accurately and make sound financial decisions.

Types of Assets:

Current assets and non-current or fixed assets are the two major categories of assets. These classifications are used to group properties into separate blocks on the balance sheet so that the overall liquidity of an organization’s assets can be determined.

What are the Current Assets?

Current assets are any of a company’s assets that are supposed to be sold, consumed, used, or exhausted within one year by regular business activities. Current assets are seen on a company’s balance sheet, which is one of the annual financial statements that must be done.

Current assets are valuable to companies because they can be used to finance day-to-day activities as well as recurring operational expenses. Current Assets are also referred to as Liquid Assets.

Examples of Current Assets:

Following are the example of current assets:

Cash
Cash equivalents
Account or notes receivable
Inventory
Marketable securities
Pre-paid Expenses

What are Fixed Assets?

A fixed asset is a long-term tangible piece of property or assets that a company owns and uses to produce revenue in its activities. Fixed assets are unable to be used or turned into cash within a year. Land, plant, and machinery are the most common fixed assets on a balance sheet. Fixed Assets are also referred to as Capital Assets.

A fixed asset is purchased for the purpose of producing or supplying products or services, renting them to third parties, or using them in an entity. When a fixed asset reaches the end of its usable life, it is typically disposed of by selling it for salvage value, which is the asset’s estimated value if broken down and sold in parts.

Example of Fixed Assets:

Following are the example of Fixed Assets:

Buildings
Computer equipment
Software
Furniture
Land
Machinery
Vehicles

What are Tangible and Intangible Assets?

Tangible Assets:

The only approach to understanding tangible assets is to recall what the term “tangible” means: something that can be felt and touched. Tangible Assets are assets that have a tangible presence that can be touched and sensed. The key distinction between tangible and intangible assets is that one can be touched and sensed while the other appears just on paper.

Example of Tangible assets:

Following are the example of tangible assets:

Furniture
Inventory
Computers
Buildings
Machines
Vehicle

Intangible Assets:

Intangible assets, the exact opposite of tangible assets, do not have a physical presence and cannot be touched or sensed. Based on the type of asset, intangible assets may be either definitive or indefinite.

Example of Intangible assets:

Following are the example of Intangible assets:

Goodwill
Patent
Copyright,
Trademark
Company’s brand name

Characteristics of Assets:

An asset has three primary characteristics:

1. Ownership: Assets reflect ownership that can be transformed into cash and cash equivalents in the future.
2. Economic Value: Assets have monetary worth and can be traded or sold.
3. Resources: Assets are tools that can be used to achieve economic gains in the future.

Conclusion:

In conclusion, An asset is anything that has value and can be used to produce future economic benefits. In accounting, there are several types of assets. The most common are cash, account receivables, and inventory. There are also intangible assets, such as patents and copyrights, and fixed assets, such as land and equipment. Each type of asset has its own benefits and drawbacks, so it is important to understand them before making any decisions about your business finances.

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