Assets

From Wikipedia, the free encyclopedia Asset Asset In business and accounting, assets are everything of value that is owned by a person or company. It is a claim on the property your income of a borrower.[1] The balance sheet of a firm records the monetary[2] value of the assets owned by the firm. It is money and other valuables belonging to an individual or business. [3]The two major asset classes are tangible assets and intangible assets. Tangible assets contain various subclasses, including current assets and fixed assets.[4] Current assets include inventory, while fixed assets include such items as buildings and equipment.[5] Intangible assets are nonphysical resources and rights that have a value to the firm because they give the firm some kind of advantage in the market place. Examples of intangible assets are goodwill, copyrights, trademarks, patents and computer programs,[5] and financial assets, including such items as accounts receivable, bonds and stocks. Assets = Liabilities +Capital (Owners’ Equity) The accounting equation is the mathematical structure of the balance sheet. Assets are listed on the balance sheet. Similarly, in economics an asset is any form in which wealth can be held. Probably the most accepted accounting definition of asset is the one used by the International Accounting Standards Board [6]. 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." [7] Asset characteristics Assets have three essential characteristics: • The probable future benefit involves a capacity, singly or in combination with other assets, in the case of profit oriented enterprises, to contribute directly or indirectly to future net cash flows, and, in the case of not-for-profit organizations, to provide services; • The entity can control access to the benefit; • The transaction or event giving rise to the entity’s right to, or control of, the benefit has already occurred. It is not necessary, in the financial accounting sense of the term, for control of assets 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. Assets are equal to "equity" plus "liabilities." The accounting equation relates assets, liabilities, and owner’s equity: 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. In a company’s balance sheet certain divisions are required by generally accepted accounting principles (GAAP), which vary from country to country. Current 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 into current assets: 1. — it is the most liquid asset, which includes currency, deposit accounts, and negotiable instruments (e.g., money orders, cheque, bank drafts). 2. — include securities bought and held for sale in the near future to generate income on short-term price differences (trading securities). 3. — usually reported as net of allowance for uncollectable accounts. 4. — trading these assets is a normal business of a company. The inventory value reported on the balance sheet is usually the historical cost or fair market 1 From Wikipedia, the free encyclopedia value, whichever is lower. This is known as the "lower of cost or market" rule. 5. — these are expenses paid in cash and recorded as assets before they are used or consumed (a common example is insurance). See also adjusting entries. 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. Asset Tangible assets Tangible assets are those that have a physical substance, such as equipment and real estate. See also • Asset management (physical) • Asset valuation • Assets inflation • Balance sheet • Commodity • Financial markets • Global assets under management • Gold as an investment • • • • Hidden asset Inflation tax Liability Lists of corporate assets Real estate Land banking Share (finance) Stockholders’ deficit Long-term investments Often referred to simply as "investments". Long-term investments are to be held for many years and are not intended to be disposed in the near future. This group usually consists of four types of investments: 1. Investments in securities, such as bonds, common stock, or long-term notes. 2. Investments in fixed assets not used in operations (e.g., land held for sale). 3. Investments in special funds (e.g., sinking funds or pension funds). Different forms of insurance may also be treated as long term investments. • • • • References Fixed assets Also referred to as PPE (property, plant, and equipment), 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 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. Websites are treated differently in different countries and may fall under either tangible or intangible assets. [1] Sullivan, arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 272. ISBN 0-13-063085-3. http://www.pearsonschool.com/ index.cfm?locator=PSZ3R9&PMDbSiteId=2781&PM [2] J.G.Siegel, N.Dauber & J.K.Shim, "The Vest Pocket CPA", Wiley, 2005. There are different methods of assessing the monetary value of the assets recorded on the Balance Sheet. In some cases, the Historical Cost is used; such that the value of the asset when it was bought in the past is used as the monetary value. In other instances, the present fair market value of the asset is used to determine the value shown on the balance sheet. [3] Sullivan, arthur; Steven M. Sheffrin (2003). [http://www.pearsonschool.com/ index.cfm? locator=PSZ3R9&PMDbSiteId=2781&PMDbSolution Economics: Principles in action]. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 192. ISBN 0-13-063085-3. http://www.pearsonschool.com/ index.cfm? locator=PSZ3R9&PMDbSiteId=2781&PMDbSolution [4] J. Downes, J.E. Goodman, "Dictionary of Finance & Investment Terms", Baron’s Financial Guides, 2003 2 From Wikipedia, the free encyclopedia [5] ^ J. Downes, J.E. Goodman, "Dictionary of Finance & Investment Terms", Baron’s Financial Guides, 2003; and J.G.Siegel, N.Dauber & J.K.Shim, "The Vest Pocket CPA", Wiley, 2005. Asset [6] The International Accounting Standards Board, IASB [7] IFRS Retrieved from "http://en.wikipedia.org/wiki/Asset" Categories: Generally Accepted Accounting Principles This page was last modified on 17 May 2009, at 19:36 (UTC). All text is available under the terms of the GNU Free Documentation License. (See Copyrights for details.) Wikipedia® is a registered trademark of the Wikimedia Foundation, Inc., a U.S. registered 501(c)(3) taxdeductible nonprofit charity. 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