What is an Asset?
An asset is a resource with a monetary value owned or managed by a person, business, or country. Assets are expected to bring benefits in the future, and they appear on a company's balance sheet. They are acquired or created to increase the company's value or to improve its operations. An asset can generate income, reduce expenses, or enhance sales in the future. For instance, manufacturing equipment or a patent can be an asset.
Asset Explained
A company owns or controls an asset that generates income or provides a competitive advantage. A company has legal rights or claims over its assets, which means it can decide how to use them and prevent others from using them.
To record an asset on its financial statements, a company must own or control it as of the statement date. An economic resource is a scarce asset that can benefit a country's economy by increasing its income or reducing expenses.
Types of Asset
Current Assets: These economic resources can be turned into cash or used up within a year. Current assets include cash and cash equivalents, accounts receivable, inventory, and prepaid expenses.
Fixed Assets: Resources with more than a year of useful life, such as plants, equipment, and buildings. An accounting adjustment called depreciation is applied to fixed assets as they age. It unrolls the cost of the asset over time. Depreciation may or may not match the fixed asset's decline in earning power.
Financial Assets: These assets are based on owning a part of another entity or having a right to receive money from another entity. Financial assets include shares, bonds, and bank deposits. Financial assets are easy to sell but can also lose value over time. Financial assets are valued based on the market conditions and the underlying asset.
Intangible Assets: These assets have no physical form but have economic value. They include things like patents, trademarks, and goodwill. Accounting for intangible assets depends on the kind of asset. They can be reduced in value over time or checked for impairment yearly.