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Encyclopedia > Asset

In business and accounting by asset is meant probable future economic benefits controlled by an entity as a result of past transactions or events and from which future economic benefits may be obtained. Look up asset in Wiktionary, the free dictionary. ... In economics, a business is a legally-recognized organizational entity existing within an economically free country designed to sell goods and/or services to consumers, usually in an effort to generate profit. ... It has been suggested that Accounting scholarship be merged into this article or section. ...


Asset characteristics

Assets have three essential characteristics:

  • They embody a future benefit that 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; and,
  • 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 access to the benefit to be legally enforceable for a resource to be an asset, provided the entity can control its use by other means. In finance, cash flow refers to the amounts of cash being received and spent by a business during a defined period of time, usually tied to a specific project. ... A non-profit organization (abbreviated NPO, or non-profit or not-for-profit) is an organization whose primary objective is to support an issue or matter of private interest or public concern for non-commercial purposes, without concern for monetary profit. ... The field of accounting that serves external decision makers, such as stockholders, suppliers, banks and government agencies See also: Management accounting field of accounting concerned with external users of a companys financial information. ...

It is important to understand that in an accounting sense an asset is not the same as ownership. In accounting, ownership is described by the term "equity," (see the related term shareholders' equity). Assets are equal to "equity" plus "liabilities." This article or section is in need of attention from an expert on the subject. ... In the most general sense, a liability is anything that is a hinderance, or puts one at a disadvantage. ...

The accounting equation relates assets, liabilities, and owner's equity: The basic accounting equation is the foundation for the double-entry book-keeping system. ... In the most general sense, a liability is anything that is a hinderance, or puts one at a disadvantage. ... Ownership equity, commonly known simply as equity, also risk or liable capital, is a financial term for the difference between a companys assets and liabilities -- that is, the value that accrues to the owners (sole proprietor, partners, or shareholders). ...

Assets = Liabilities + Owners' Equity,

The accounting equation is the mathematical structure of the balance sheet. This article needs additional references or sources for verification. ...

Assets are usually listed on the balance sheet. It has a normal balance, or usual balance, of debit (i.e., asset account amounts appear on the left side of a ledger). This article needs additional references or sources for verification. ... Normal balance is the accounting classification of an account. ... link title Debit is an accounting and bookkeeping term that comes from the Latin word debere which means to owe. ... A ledger (from the English dialect forms liggen or leggen, to lie or lay; in sense adapted from the Dutch substantive logger), is the principal book for recording transactions. ...

Similarly, in economics an asset is any form in which wealth can be held. ‹ The template below is being considered for deletion. ... For the business meaning, see Wealth (economics). ...

Probably the most accepted accounting definition of asset is the one used by the International Accounting Standards Board [1]. 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." [2] The International Accounting Standards Board (IASB) founded on April 1, 2001 is the successor of the International Accounting Standards Committee (IASC) founded in June 1973 in London. ...

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.

Classification of assets

Assets may be classified in many ways. In a company's balance sheet certain divisions are required by generally accepted accounting principles (GAAP), which vary from country to country. This article needs additional references or sources for verification. ...

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. Cash — it is the most liquid asset, which includes currency, deposit accounts, and negotiable instruments (e.g., money orders, cheque, bank drafts).
  2. Short-term investments — include securities bought and held for sale in the near future to generate income on short-term price differences (trading securities).
  3. Receivables — usually reported as net of allowance for uncollectible accounts.
  4. Inventory — 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 value, whichever is lower. This is known as the "lower of cost or market" rule.
  5. Prepaid expenses — 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. Market liquidity is a business, economics or investment term that refers to an assets ability to be easily converted through an act of buying or selling without causing a significant movement in the price and with minimum loss of value. ... This article does not cite any references or sources. ... A negotiable instrument is a specialised type of contract for the payment of money which is unconditional and capable of transfer by negotiation. ... Inventory is a list of goods and materials, or those goods and materials themselves, held available in stock by a business. ... This article needs additional references or sources for verification. ... Adjusting entries are journal entries usually made at the end of an accounting period to allocate income and expenditure to the period in which they actually occurred. ... Domestic credit to private sector in 2005 Working capital (also known as net working capital) is a financial metric which represents the amount of day-by-day operating liquidity available to a business. ... In the most general sense, a liability is anything that is a hindrance, or puts individuals at a disadvantage. ...

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).
  4. Investments in subsidiaries or affiliated companies.

Different forms of insurance may also be treated as long term investments. A subsidiary, in business, is an entity that is controlled by another entity. ... Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. ...

Fixed assets

Also referred to as PPE (property, plant, and equipment), or tangible assets, 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. This article or section does not cite any references or sources. ... Land in economics comprises all naturally occurring resources whose supply is inherently fixed (i. ... For other uses, see Building (disambiguation). ... A machine is any mechanical or electrical device that transmits or modifies energy to perform or assist in the performance of tasks. ... This article or section does not cite any references or sources. ... Declining-balance depreciation of a $50,000 asset with $6,500 salvage value over 20 years. ...

These are also called capital assets in management accounting. In accounting, a capital asset is an asset that is recorded as capital - that is, property that creates more property, e. ... Management accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis in making informed business decisions that would allow them to be better equipped in their management and control functions. ...

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. For other uses, see Patent (disambiguation). ... Not to be confused with copywriting. ... Franchising (from the French for honesty or freedom[1]) is a method of doing business wherein a franchisor licenses trademarks and tried and proven methods of doing business to a franchisee in exchange for a recurring payment, and usually a percentage piece of gross sales or gross profits as well... Look up Goodwill in Wiktionary, the free dictionary. ... “(TM)” redirects here. ... A trade name, also known as a trading name or a business name, is the legal name of a business, or the name which a business trades under for commercial purposes. ...

Some assets such as websites are treated differently in different countries and may fall under either tangible or intangible assets.

Other assets

This section includes a high variety of assets, most commonly:

  • long-term prepaid expenses
  • long-term receivables
  • intangible assets (if they represent just a very small fraction of total assets)
  • property held for sale.

In a lot of cases this section is too general and broad, because assets could be classified into four above categories. Intangible assets are defined as those non-monetary assets that cannot be seen, touched or physically measured and which are created through time and/or effort. ...


  1. ^ The International Accounting Standards Board, IASB
  2. ^ IFRS

See also

Valuation is the process of estimating the value of an asset or liability. ... This article or section does not cite its references or sources. ... This article needs additional references or sources for verification. ... This article does not cite any references or sources. ... In finance, financial markets facilitate: The raising of capital (in the capital markets); The transfer of risk (in the derivatives markets); and International trade (in the currency markets). ... Reserves of foreign exchange and gold in 2006 A pile of 12. ... In finance, a hidden asset is an asset that is not shown on a balance sheet. ... An inflation tax is the economic disadvantage suffered by holders of cash and cash equivalents in one denomination of currency due to the effects of inflation, which acts as a hidden tax that subtracts value from assets. ... In the most general sense, a liability is anything that is a hindrance, or puts individuals at a disadvantage. ... Much of the worlds assets, particularly in the media industry, are concentrated in the hands of a small number of large corporations. ... Real estate is a legal term that encompasses land along with anything permanently affixed to the land, such as buildings. ... It has been suggested that this article or section be merged into Retained earnings. ... This article or section does not adequately cite its references or sources. ...

External links

Look up asset in Wiktionary, the free dictionary.

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