What is Asset?

Definition of Asset.

A resource with economic worth that an individual, corporation, or country possesses or controls with the hope of future gain is referred to as an asset. Assets are bought or developed to raise a company's value or benefit its operations, and they are reported on the balance sheet. Whether it's manufacturing equipment or a patent, an asset can be looked of as something that can create cash flow, cut expenses, or increase sales in the future.

TAKEAWAYS IMPORTANT

• A resource with economic worth that an individual, corporation, or country possesses or controls with the hope of future gain is referred to as an asset.

• Assets are bought or developed to raise a company's value or benefit its operations, and they are reported on the balance sheet.

• Whether it's manufacturing equipment or a patent, an asset can be looked of as something that can create cash flow, cut expenses, or increase sales in the future.

Assets: An Overview

An asset is a financial resource for a corporation or access that other persons or businesses do not have. A legal right or other access indicates that economic resources can be used at the discretion of a corporation, and their use can be prohibited or regulated by the owner.

A corporation must have a right to an asset as of the date of the financial statements in order for it to be present. An economic resource is something that is limited in supply and has the power to generate economic gain by increasing or decreasing cash inflows or outflows.

Short-term (or current) assets, physical assets, financial investments, and intangible assets are all types of assets.

Assets of Different Types

Current Assets:

Short-term economic resources that are projected to be transformed into cash within a year are referred to as current assets. Cash and cash equivalents, accounts receivable, inventories, and different prepaid expenses are all examples of current assets.

While cash is simple to value, accountants must reevaluate the recoverability of inventory and accounts receivable on a regular basis. It will become impaired if there is evidence that accounts receivable may be uncollectible. Companies may also write off inventory if it becomes obsolete.

Fixed Assets:

Plants, equipment, and buildings are examples of long-term resources. Depreciation is a recurring charge that may or may not reflect the loss of earning capacity for a fixed asset. It is used to account for the ageing of fixed assets.

Depreciation can be done in two ways, according to generally accepted accounting standards (GAAP). The straight-line technique posits that the value of a fixed asset depreciates in proportion to its useful life, whereas the accelerated method assumes that the asset depreciates more rapidly in the early years of usage.

Financial Assets:

Financial assets are investments in other institutions' assets and securities. Stocks, sovereign and corporate bonds, preferred equity, and other hybrid securities are examples of financial assets. The value of financial assets is determined by how the investment is classified and the motivation behind it.

Intangible Assets:

Intangible assets are financial resources that do not have a physical location. Patents, trademarks, copyrights, and goodwill are among them. Intangible assets are treated differently depending on their type, and they might be amortized or assessed for impairment each year.

You can't touch intangible assets, but they provide a financial value to someone. Intellectual property, contractual obligations, royalties, and goodwill are all examples of this type of asset. Non-physical assets such as brand equity and reputation can be quite valuable. Stocks and derivatives contracts, for example, are intangible financial assets.

Current Asset v/s Fixed Asset?

Current Asset:

Current assets are assets that can be converted into cash in a single fiscal year or operating cycle. Current assets are utilized to make day-to-day operations and investments easier. As a result, short-term assets are liquid, which means they may be changed into cash quickly.

Examples of current assets:

• Cash and cash equivalents
• Inventory
• Marketable securities
• Accounts receivable
• Prepaid expenses

Fixed Asset:

Noncurrent assets that a corporation utilizes in the production of goods and services with a life of more than one year are known as fixed assets. Fixed assets are stated as property, plant, and equipment on the balance sheet (PP&E). Fixed assets are long-term investments that are also known as tangible assets since they can be touched.

Examples of Fixed assets:

• Vehicles
• Building
• Office furniture
• Land
• Machinery

Key Differences of Current Asset & Fixed Asset.

Non current assets that a corporation utilizes in the production of goods and services with a life of more than one year are known as fixed assets. Fixed assets are stated as property, plant, and equipment on the balance sheet (PP&E). Fixed assets are long-term investments that are also known as tangible assets since they can be touched.

Non current assets (such as fixed assets) are difficult to convert into cash quickly enough to cover short-term operating needs or investments. Current assets are scheduled to be liquidated within one fiscal year or one operating cycle, whereas fixed assets have a useful life of over one year. If a company requires cash quickly, it can sell current assets, but it cannot do so with fixed assets.

For example, if the economy is in a crisis and a firm is losing money but still needs to pay a debt next month but lacks the cash reserves to do so, it can sell its marketable securities and acquire cash within a few days. However, it would be unable to sell its factory in a matter of days in order to earn cash because the procedure would take much longer.

Take a break and Read some Stories.