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What are assets?

An asset can be referred to as an economic resource. Any resource that is controlled by the company as a result of past events and from which there’s future economic benefits.

Characteristics of assets:

One of the most accepted accounting definition of an asset is the one used by the International Accounting Standards Board. The following as a quote 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.”

Assets in accounting

The accounting equation is the whole mathematical structure of the balance sheet. It relates assets, liabilities and owner’s equity in the following methods:

  1. Assets=Liabilities+Capital
  2. Liabilities=Assets-Capital
  3. Capital=Assets-Liabilities

The total value of a firm’s assets are always equal to the combined value of its capital and liabilities. An asset is listed on the balance sheet and with certain division, it must follow the GAAP.

Current Assets

Current assets are cash and other assets that are expected to convert to cash or consumed either in a year or in the operating cycle, without disturbing the normal operation of a business. These assets are continually turned over during the course of an entity’s normal business activity.

These are the 5 major terms that are used in current assets:

Cash and cash equivalents It is the most liquid asset and it includes currency and deposit accounts.
Short-term investments Includes securities bought and held for sale in the near future to generate income on short-term price differences.
Receivables Usually reported as net of allowance for noncollectable accounts.
Inventory Trading these assets is a normal business of a company. The inventory value is recorded on the balance sheet as either the historical cost or fair market value.
Prepaid expenses These are expenses paid in advance. Each one is recorded as an asset before it is used.