In business as well as accounting language, assets refer to economic resources which are owned by a company or business. Any tangible and intangible item that one possesses, and which can be utilized for paying off one’s debts, is referred to an asset. Simply speaking, assets are valuable things which may be instantly transformed into cash. A company’s balance sheet has the record of the firm’s assets monetary value.
Characteristics of asset
• Assets refer to the estimated current benefit either involved singly or by combining with several assets in case of a profit oriented company.
• Assets contribute either directly or indirectly to future total cash flows, or provide services in the case of a non – profit organization.
• The entity exercises control over the access to the benefits of the asset.
• The event or transaction which gives rise to the power of the entity to manage and control access to the benefit has already taken place in the past.
In accounting sense, assets are capital (owner’s equity) plus liabilities.
Summing up, an asset refers to a resource which is controlled by the organization due to past occurrences, and from which potential economic benefits for future are expected to take place for the organization. The purchasing, servicing, upgrading, licensing and disposal of assets are done by “asset tracking tools” within big organizations.
Types of assets
• Current assets: These refer to cash as well as other assets which can be changed to cash and consumed or sold during the course of a year or in an operation cycle. These include:
a) Cash and equivalents of cash like currency, negotiable instruments – money orders, bank drafts, or checks.
b) Short-term investments like securities.
c) Receivables from customers
d) Inventory: The inventory value on the balance sheet is generally either the fair market value or the historical cost, whichever is less.
e) Prepaid expenses: Expenses that are paid in cash and depicted as assets prior to them being consumed, like insurance.
• Long – term assets: These are generally held for several years and are not meant to be disposed off in near future. These are bonds, long-term notes, and common stock. Land for sale, sinking funds, pension funds and different types of insurance can also be taken as long-term assets or investments.
• Fixed assets: These are also called capital assets and include buildings, land, machinery, tools, furniture which are bought for long – term use in order to earn profit in a particular business.
• Tangible assets: Those assets which have a concrete or physical existence like real estate and equipments are referred to as tangible assets.
• Intangible assets: These are assets which do not have physical substance and are generally difficult to evaluate. Copyrights, patents, franchises, trademarks, goodwill, and trade names belong to the category of intangible assets.
Investors generally adopt the strategy of asset allocation to distribute investments amongst different classes of vehicles for investments like stocks or bonds. Diversification helps in reducing the total risk relating to variable returns for a particular level of estimated return.