Definition:
An asset is money or anything of worth that a business, individual, or other entity holds and can fairly anticipate producing future financial or non-financial advantages from.
Explanation of assets
In corporate accounting, an asset is any valuable item that belongs to a company and that an organization lists on its balance sheet. Companies usually retain assets because they expect to benefit from them in the future: this can be improving the efficiency of the company, increasing the value of the company, current cash flow or profit from the sale of the asset. Assets can be tangible (for example, equipment, car, cash) or intangible (for example, trademark, patent, company reputation).
Assets play a significant role in accounting and are generally classified by their liquidity, tangible and usability in business transactions. The assets are also owned by individuals, governments and other organizations.
What is an asset?
Assets are resources owned by a company to maintain its day-to-day operations or benefit (often in the form of revenue). All assets of the company have a certain dollar value, which is reflected in the company’s balance sheet.
If you subtract all outstanding liabilities from total assets, the company will receive its own capital – this is the part of the business that belongs to its owners. Companies reflect their assets, liabilities and equity in their balance sheets.
Asset tracking shows the company’s ability to maintain operations, financial condition and overall performance. Investors, analysts, lenders and other stakeholders often use assets in various financial ratios to value a company.
Examples of assets
1. Current assets can quickly turn into cash within 12 months. Current assets have high liquidity – they are considered a means of rapid cash flow. Company owners need to pay bills quickly, and current assets such as cash and cash equivalents help owners settle current liabilities on time.
2. Fixed assets: unlike current assets, converting fixed assets into cash takes longer than 12 months. Fixed assets are also called non-current assets.
3. Tangible assets are assets you can touch, feel and see. Tangible assets are also called physical assets.
Examples of tangible assets:
- Cash
- Cash equivalents
- Real estate
- Equipment
- Stocks
- Investments
- Securities
Examples of intangible assets:
- Intellectual property
- Software
- Licenses
- Government grants
- Secret formulas
4. Operating assets are necessary for daily business operations and are necessary to generate income from the company’s core business. McDonald’s, for example, needs to have buns, cheese and patties to make a cheeseburger.
Examples of operating assets:
- Cash
- Stocks
- Equipment
- Trademarks
- Copyright
- Secret recipes
- Permissions
- Licenses
5. Non-operational assets are not necessary to complete day-to-day business activities, but can still be a source of income for the company. Companies usually own them because they hope they will bring some kind of benefit in the future.
Examples of non-operational assets:
- Short-term investments
- Long-term investments
- Market securities
- Undeveloped land
Difference between total assets and total liabilities
The main difference between total assets and total liabilities is clear: total assets provide future benefits and total liabilities provide future financial liabilities.
Total assets and total liabilities recorded in the company’s balance sheet help determine the proportion of total assets actually held by the company. Total assets indicate the value of all resources controlled by the company, and total liabilities indicate how much of these resources the company financed from debt.
If you subtract total liabilities from total assets, you get the company’s share capital.
Total Assets in Balance Sheet: How do I determine?
The accounting report is one of the important financial documents that is provided by the company to its owners and shareholders. The ability to access a company’s accounting report depends on whether it is private or public. Under the law, only public companies are required to disclose their balance sheet in filed quarterly financial statements (10-Q) and annual reports (10-k).
As a rule, the organization’s balance sheet can be found on the companies’ websites in the “investor relations” section. You can also find the company’s quarterly and annual reports on the U.S. Securities and Exchange Commission (SEC) website using the EDGAR search feature.
Access to the balance sheets of private companies will need to be requested from the owners or managers of the company.
How do I calculate total assets?
The formula for calculating total assets is as follows: Total assets = total current assets – total property, plant and equipment.
Both total current assets and total non-current assets are recorded in the company’s accounting statement.
Total assets are the total book value of all assets held by the company. To calculate the book value of the company’s assets, you need to remember to subtract all accumulated depreciation associated with the assets. The consolidated balance sheet included in the quarterly or annual statements of the publicly traded company will already deduct accumulated depreciation for your convenience.