Asset

An Asset is an item of economic value, or an item capable of producing value, and could be converted to cash.  Cash in itself is also considered an asset.  Examples are securities, accounts receivable, inventory, office equipment

Asset

An Asset is an item of economic value, or an item capable of producing value, and could be converted to cash.  Cash in itself is also considered an asset.  Examples are securities, accounts receivable, inventory, office equipment, real estate, and other property.


'Assets' Formula

On a balance sheet, assets are always equal to the combined value of its "equity" and "liabilities."

Formula to calculate assets

'Assets' Interpretation

From an accounting perspective, assets are divided into the following categories: current assets (cash and other liquid items), long-term assets (real estate, plant, equipment), prepaid and deferred assets (expenditures for future costs such as insurance, rent, interest), and intangible assets (trademarks, patents, copyrights, goodwill).

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

Current assets are assets expected to be converted to gold, cash, or consumed either in a year without disturbing the normal operations of a business.  These assets are continually turned over in the course of a business during normal business activity. Current assets include

  • Cash and cash equivalents:  currency, deposit accounts, money orders, check, bank drafts;
  • Short-term investments:  securities bought and held for sale in the near future;
  • Receivables:   usually reported as net of allowance for noncollectable accounts;
  • Inventory:   historical cost or fair market value, whichever is lower;  and
  • Prepaid expenses: insurance, etc.

Long Term Investments

Long-term investments are assets not intended to be disposed of in the near future. This group consists of investments in:

  • bonds, common stock, or long-term notes;
  • land or other fixed assets held for sale;
  • pension or other special funds;
  • certain forms of insurance.

Fixed Assets

Fixed assets includes land, buildings, machinery, furniture, and tools used in earning a profit.

Intangible assets

Intangible assets include patents, copyrights, franchises, goodwill, trademarks, trade names, etc. Intangible assets are not of a physical nature and are usually are very hard to evaluate.

Related Terms