What Are Assets In Accounting? Types, Examples & Importance

Assets are the economic resources that are controlled by an individual, by a company, or by a corporation in the expectation of current or future economic benefit to the business.

What Are Assets In Accounting

There are dozens of asset definitions in accounting some of the most popular definitions are the following:

The economic resources that have some value and can bring some benefit to the owner
Anything that can be used legally without getting anyone’s permission (means have legal ownership)

Definition Of An Asset By IFRS

International Financial Reporting Standard is a widely used Financial Reporting System across the world.

IFRS definition of an asset: a present economic resource that is controlled by an entity as a result of past events and can produce future economic benefit.

Definition Of An Asset By GAAP

General Accepted Accounting Principles that are used across the United States of America. This standard defines an asset as “ a resource that has economic value and is owned or controlled by an entity with the vision of future economic benefit.

Characteristics Of An Asset

Present Right or Ownership
Has economic Value and Economic Benefits

Classification Of Assets In Accounting

Following are the three classifications of assets that are used in accounting to classify an asset.

Convertibility

The term convertibility is defined as how an asset is easy to convert into cash and how much time it will take. Following are the two assets that are classified as convertible assets.

Current Assets: These assets are classified as short-term assets used within a year and can easily be converted into cash. (Examples: Business inventories, receivables, cash, other liquid assets, and financial assets).

Non-Current Assets: These are long-term assets and cannot be converted into cash easily and normally lose their value over time because they are depreciated over their life. (E.g. Vehicles, buildings, and PPE).

Existence

The term existence is used to classify assets on the basis of their shapes or physical existence. Following are the two assets that are classified on the basis of physical existence.

Tangible Assets: Those assets that have physical existence and can be seen or touched are termed tangible assets. (E.g. machinery, building, stock, etc.).

Intangible Assets: Those assets that have no physical existence or assets cannot be touched or seen. (E.g. Goodwill, Patents, and Brands).

Usage

Assets that are classified on the basis of uses and purposes within a business are classified in this class. The following are the two assets that are classified in this class.

Operating Assets: Those assets that are used in the business’s ongoing operations and are needed for making products and sales such as cash, inventories, receivable and payable.

Non-Operating Assets: Those assets that are part of a business but normally not used in the business’s ongoing operations such as spare or extra equipment, idle cash, or sometimes investable assets. Non-operating assets increase the value of non-operating income on the balance sheet.

What Is The Difference Between Current Asset And Non-Current Asset

Current Assets	Non-Current Assets
Can convert Into Cash Within 1 year	Takes more time to convert into cash than the Current asset
It is a short-term asset	It is a long-term asset
Reported on lower market value	Reported on historical cost
Contribute in sales	Contribute in production
Need continuous intention to work efficiently	Need good strategic planning to work efficiently

What Are Assets

What Is The Difference Between Tangible Assets And Intangible Assets

Tangible Assets	Intangible Assets
Have physical shape or existence	Have no physical shape but have values
They are depreciated	They are amortized
It has a finite useful life	Can be finite infinite
They are reported on market value	They are estimated
Can easily be sold or bought directly in the market	Limited or sometimes tough to buy or sell

What Are Assets

What Is The Difference Between Operating Assets And Non-Operating Assets

Operating Assets	Non-Operating Assets
Directly used in business operations	These are not the core part of the business
Contribute in revenue	Contribute only to non-operating income
Directly impact profit	Have no direct impact on the profit of the business
They are valued as per the contribution	They are valued at market price or fair value
They are related to operational risks	While these assets are not

What Are Assets

What Are Fictitious Assets

These are artificial assets that have no physical existence or monetary value. When there are some expenditures or losses that occur in the business that cannot be classified in any accounts such as expense or intangible assets then these entries are made to write off that cost straight away.

Some examples of fictitious assets:

Legal fees of incorporation setup
Registration cost of a business
Promotional expenses are also a kind of fictitious asset
Shares that are issued at a lower price than face value
Research and development expenses are also considered fictitious assets, etc.

What Are Total Assets In Accounting

Total assets mean the total value of the assets that are owned by an individual, company, or business. The total assets are recorded in the financial position statement and consist of both tangible and intangible assets.

How to calculate total assets

Total assets = Total value of the current assets + non-current assets

What Are Average Total Assets In Accounting

The average total assets mean the average value of the company’s assets over a specific period (normally a year). The average total assets method is very useful to determine the efficiency and profitability of a company as per the revenue throughout the year.

How to calculate average total assets

For calculating the total average assets just add the value of the total assets at the end and the value of the total assets at the start of the financial year and divide it by 2.

What Are Net Assets In Accounting

The net assets are referred to as the remaining amount of the assets after subtracting all the liabilities from the business balance sheet.

How to calculate net assets

To know the value of the net assets, subtract the total liabilities from the total assets.

Net asset formula = Total assets (Current and Non-Current Assets) − Total Liabilities (Current and Non-Current Liabilities)

How Assets Are Considered

Anything that is owned by an individual, company, or corporation that can give benefit in the present time or in the future, or is expected to give some benefit in the long run is considered an asset.

What Are The Examples Of Assets

The assets can be in infinite shapes but some of the most used assets in accounting are the following:

Cash
Inventories
Account Receivable
Prepaid Expense
Short term Investment
Advance To Supplier
Marketable Securities
Accrued Income
Bank Deposit
Land
Building
Machinery
Vehicles
Patent
Trademark
Copyright
Goodwill
Subsidiary
Associates
Future Tax Benefits
Furniture
Fixture
Office Equipment
Equity Investment
Bonds
Debentures
Pension
Royalty
Long term contract
Leasehold Improvement
Trade Secrets
License and permits
Interest Income
House
Business Software, etc.

Assets FAQS

Is money an asset?

Yes, if money is in the form of cash or cash equivalents then it is considered as a current asset.

Is interest revenue an asset?

Interest revenue for the year means interest receivable is treated as a current asset in the balance sheet of a company.

Are sales an asset?

Sales are not assets nor it is a liability, these are income or revenue which are recorded in the statement of profit and loss.

Is additional paid-in capital an asset?

Additional paid-in capital is not really an asset but it can be utilized and invested which indirectly increases the value of assets. APIC is recorded under the heading of assets.

What are noncash assets in accounting?

Noncash assets are those assets that are not in the form of cash or cash equivalents but have some value in the business. Some of the most popular non-cash assets are Investments and prepaid or deferred expenses.

What is the meaning of monetary asset?

Monetary assets are those assets that are easily convertible into cash and have a very low risk of reducing value. Some of the best examples of monetary assets are cash, bank deposits, and short-term investments.

Is treasury stock an asset?

Treasury stock is not treated as an asset in the balance sheet and is subtracted from the shareholder’s equity. Treasury stock is something that does not represent ownership in the company.

Is rent expense an asset?

Rent expense is not an asset but it is treated as operating expense in the statement of profit and loss. But the prepaid expense is an asset.

Is notes receivable an asset?

The note receivable is an asset and can be recorded under the heading of the current or non-current asset according to the repayment duration. The note receivable is the amount that the borrower pays within the specified date of an agreement.

What is the difference between liquid and illiquid assets?

The main difference between liquid and illiquid assets is, that liquid assets are easy to convert into cash and have a good market while illiquid assets have a limited market and cannot be converted into cash in a short time.

Is a retirement account an asset?

Retirement accounts are treated as an asset (Non-current asset) because they are healed for a long period under the financial institutions, it can be in the form of bonds, stocks, and other investments.

Which of the following is not considered as an asset?

Cash
Research and development expense
Car

Research expense is always treated as an expense but development expense can be capitalized as an asset if certain conditions are met.

Which of the following is classified as a plant asset?

Building
Land
Machinery
Car

All of the above options are classified as plant assets because all these assets are non-current assets.

Which of the following is not an asset?

Car
Office Supplies
Bank Overdraft
Machine

A bank overdraft is a liability, not an asset.

Is furniture an asset?

Yes, furniture is an asset and is recorded in the section of non-current assets.

Is office supplies an asset?

Yes, office supplies are assets and are recorded in the section of non-current assets.

Are fees earned an asset?

Until fees earned are received they are recorded in account receivable which is an asset account but once the amount is received it is subtracted from the account receivable and recorded in the cash book.

Is a bank account an asset?

Yes, the bank account is an asset and is recorded in the section of current assets.

Is building an asset?

The building is an asset and is recorded in the section of non-current assets as this falls in the category of PPE (Property Plant and Equipment).

Is mortgage an asset?

A mortgage can be an asset because one can use it without any permission once the amount is received but after a certain time, the amount has to be paid with the interest that falls in the category of liability.

Is cash considered an asset?

Cash is an asset and is recorded under the heading of current assets.

What is an asset class?

Asset class refers to the group of assets that has similar characteristics and laws.

Is an asset a debit or credit?

Whenever assets value increases its balance is recorded as debit and when assets are decreasing it becomes credit.

Is home equity an asset?

Home equity is the net worth of an individual and it is classified as an asset.