Asset

Reviewed by Sujaini | Updated on Aug 27, 2020

What is an Asset?

An asset is an economic-value resource owned or regulated by a person, company, or country with the intention that it will provide a future profit. The assets are listed on the balance sheet of a company and are acquired or produced to increase the value of a company or support the operations of that company. An asset can be seen as something that will create cash flow in the future, minimise costs or boost profits, irrespective of whether it is production equipment or a patent.

Breaking Down Asset

An asset is an economic resource for business or reflects access that is not open to other individuals or firms. A right or other access is legally enforceable; ensuring that an individual may use economic resources at the discretion of a corporation and its use may be precluded or restricted.

To order for an asset to be available, a corporation must have a right to it from the date of the financial statements. An economic resource is something scarce that has the potential to create commercial gain through cash inflows or cash outflows.

Assets may be divided loosely into short-term (or current) assets, fixed assets, financial investments and intangible assets.

Types of Assets

Current assets are short-term economic capital which can be turned into cash in one year. Existing assets include cash and cash equivalents, receivable accounts, inventories and other prepayment expenditures.

Fixed assets, such as plants, machinery, and structures, are long-term capital. An allowance for the aging of fixed assets is made based on annual charges called depreciation, which may or may not represent the reduction of a fixed asset's earning power.

Economic assets account for investments in other institutions' properties and shares. Capital assets include stocks, corporate and sovereign debt, preferred equity and other hybrid securities. Financial assets are measured according to the categorisation of the investment and the purpose behind it.