In financial accounting Financial accountancy is the field of accountancy concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers, banks, employees, government agencies, owners, and other stakeholders. Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset. Simplistically stated, assets represent ownership of value that can be converted into cash (although cash itself is also considered an asset).^[1] The balance sheet In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of of a firm records the monetary^[2] value of the assets owned by the firm. It is money and other valuables belonging to an individual or business.^[1] Two major asset classes are tangible assets and intangible assets. Tangible assets contain various subclasses, including current assets and fixed assets.^[3] Current assets include inventory, while fixed assets include such items as buildings Buildings come in a wide amount of shapes and functions, and have been adapted throughout history for a wide number of factors, from building materials available, to weather conditions, to land prices, ground conditions, specific uses and aesthetic reasons and equipment A tool is a device that can be used to produce or achieve something, but that is not consumed in the process. Colloquially a tool can also be a procedure or process used for a specific purpose. Tools that are used in particular fields or activities may have different assignations such as Instrument, Utensil, Implement, Machine, Apparatus.^[4] Intangible assets are nonphysical resources and rights that have a value to the firm because they give the firm some kind of advantage in the market place. Examples of intangible assets are goodwill Goodwill is an accounting term used to reflect the portion of the book value of a business entity not directly attributable to its assets and liabilities; it normally arises only in case of an acquisition. It reflects the ability of the entity to make a higher profit than would be derived from selling the tangible assets. Goodwill is considered an, copyrights Copyright is the set of exclusive rights granted to the author or creator of an original work, including the right to copy, distribute and adapt the work. These rights can be licensed, transferred and/or assigned. Copyright lasts for a certain time period after which the work is said to enter the public domain. Copyright applies to a wide range of, trademarks A trademark or trade mark is a distinctive sign or indicator used by an individual, business organization, or other legal entity to identify that the products or services to consumers with which the trademark appears originate from a unique source, and to distinguish its products or services from those of other entities, patents A patent is a set of exclusive rights granted by a state (national government) to an inventor or their assignee for a limited period of time in exchange for a public disclosure of an invention and computer programs A computer program is a sequence of instructions written to perform a specified task for a computer. A computer requires programs to function, typically executing the program's instructions in a central processor. The program has an executable form that the computer can use directly to execute the instructions. The same program in its human-,^[4] and financial assets, including such items as accounts receivable Accounts receivable is one of a series of accounting transactions dealing with the billing of a customer for goods and services he/she has ordered. In most business entities this is typically done by generating an invoice and mailing or electronically delivering it to the customer, who in turn must pay it within an established timeframe called &, bonds In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest and/or to repay the principal at a later date, termed maturity. A bond is a formal contract to repay borrowed money with interest at fixed intervals and stocks The stock or capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors. Stock is distinct from the property and the assets of a business which may fluctuate in.

Asset characteristics

• The probable present benefit involves a capacity, singly or in combination with other assets, in the case of profit oriented enterprises, to contribute directly or indirectly to future net cash flows Cash flow refers to the movement of cash into or out of a business, a project, or a financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used, and, in the case of not-for-profit organizations A non-profit organization is an organization that does not distribute its surplus funds to owners or shareholders, but instead uses them to help pursue its goals. Examples of NPOs include charities (i.e. charitable organizations), trade unions, and public arts organizations. Most governments and government agencies meet this definition, but in, to provide services;
• The entity can control access to the benefit;
• The transaction or event giving rise to the entity's right to, or control of, the benefit has already occurred.

In the financial accounting Financial accountancy is the field of accountancy concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers, banks, employees, government agencies, owners, and other stakeholders. Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power sense of the term, it is not necessary to be able to legally enforce the asset's benefit for qualifying a resource as being an asset, provided the entity can control its use by other means.

It is important to understand that in an accounting sense an asset is not the same as ownership. Assets are equal to "equity" plus "liabilities In financial accounting, a liability is defined as an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future."

The accounting equation The 'basic accounting equation' is the foundation for the double-entry bookkeeping system. It shows how assets were financed: either by borrowing money from someone or by paying your own money (ownership equity) relates assets, liabilities In financial accounting, a liability is defined as an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future, and owner's equity In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If valuations placed on assets do not exceed liabilities, negative equity exists. In an accounting context, Shareholders' equity represents the remaining interest in assets of a company, spread among:

Assets = Liabilities +Stockholder's Equity(Owners' Equity)

The accounting equation is the mathematical structure of the balance sheet In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of.

Assets are listed on the balance sheet In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of. Similarly, in economics Economics is the social science that is concerned with the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek οἰκονομία from οἶκος (oikos, "house") + νόμος (nomos, "custom" or "law"), hence "rules of the house(hold)". Current an asset is any form in which wealth Wealth is the abundance of valuable resources or material possessions or the control of such assets. The word wealth is derived from the old English wela, which is from an Indo-European word stem. An individual, community, region or country that possesses an abundance of such possessions or resources is known as wealthy can be held.

Probably the most accepted accounting definition of asset is the one used by the International Accounting Standards Board The IASB was founded on April 1, 2001 as the successor to the International Accounting Standards Committee . It is responsible for developing International Financial Reporting Standards (the new name for International Accounting Standards issued after 2001), and promoting the use and application of these standards .^[5] The following is a quotation 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."^[6]

Assets are formally controlled and managed within larger organizations via the use of asset tracking tools. These monitor the purchasing, upgrading, servicing, licensing, disposal etc., of both physical and non-physical assets.^{[clarification needed]} In a company's balance sheet In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of certain divisions are required by generally accepted accounting principles Generally Accepted Accounting Principles is the americanized term used to refer to the standard framework of guidelines for financial accounting used in any given jurisdiction which are generally known as Accounting Standards. GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing transactions, and in (GAAP), which vary from country to country.^[7]

Current assets

Current assets are cash and other assets expected to be converted to cash, sold, or consumed either in a year or in the operating cycle (whichever is longer), without disturbing the normal operations of a business. These assets are continually turned over in the course of a business during normal business activity. There are 5 major items included into current assets:

1. Cash and cash equivalents Cash and cash equivalents are the most liquid assets found within the asset portion of a company's balance sheet. Cash equivalents are assets that are readily convertible into cash, such as money market holdings, short-term government bonds or Treasury bills, marketable securities and commercial paper. Cash equivalents are distinguished from other — it is the most liquid asset In business, economics or investment, market liquidity is an asset's ability to be sold without causing a significant movement in the price and with minimum loss of value. Money, or cash on hand, is the most liquid asset. An act of exchange of a less liquid asset with a more liquid asset is called liquidation. Liquidity also refers both to a, which includes currency In economics, the term currency can refer to a particular currency, for example Pound Sterling, or to the coins and banknotes of a particular currency, which comprise the physical aspects of a nation's money supply. The other part of a nation's money supply consists of money deposited in banks , ownership of which can be transferred by means of, deposit accounts A deposit account is a current account, savings account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank's books, and the resulting balance is recorded as a liability for the bank, and represent the amount owed by the bank to, and negotiable instruments A negotiable instrument is a specialized type of "contract" for the payment of money that is unconditional and capable of transfer by negotiation. As payment of money is promised later, the instrument itself can be used by the holder in due course frequently as money. Common examples include cheques, banknotes , and commercial paper. In (e.g., money orders, cheque, bank drafts).
2. Short-term investments Investment is the commitment of money or capital to purchase financial instruments or other assets in order to gain profitable returns in the form of interest, income, or appreciation of the value of the instrument. It is related to saving or deferring consumption. Investment is involved in many areas of the economy, such as business management — include securities bought and held for sale in the near future to generate income on short-term price differences (trading securities).
3. Receivables Accounts receivable is one of a series of accounting transactions dealing with the billing of a customer for goods and services he/she has ordered. In most business entities this is typically done by generating an invoice and mailing or electronically delivering it to the customer, who in turn must pay it within an established timeframe called & — usually reported as net of allowance for uncollectable accounts.
4. Inventory Inventory is a list for goods and materials, or those goods and materials themselves, held available in stock by a business. It is also used for a list of the contents of a household and for a list for testamentary purposes of the possessions of someone who has died. In accounting inventory is considered an asset — trading these assets is a normal business of a company. The inventory value reported on the balance sheet In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of is usually the historical cost or fair market value, whichever is lower. This is known as the "lower of cost or market" rule.
5. Prepaid expenses Deferred, in accrual accounting, is any account where the asset or liability is not realized until a future date , e.g. annuities, charges, taxes, income, etc. The deferred item may be carried, dependent on type of deferral, as either an asset or liability. See also accrual — these are expenses paid in cash and recorded as assets before they are used or consumed (a common example is insurance). See also adjusting entries In accounting/accountancy, adjusting entries are journal entries usually made at the end of an accounting period to allocate income and expenditure to the period in which they actually occurred. The revenue recognition principle is the basis of making adjusting entries that pertain to unearned and accrued revenues under accrual-basis accounting.

The phrase net current assets (also called working capital Working capital, also known as "WC", is a financial metric which represents operating liquidity available to a business. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. It is calculated as current assets minus current liabilities. If current assets are less than current) is often used and refers to the total of current assets less the total of current liabilities In financial accounting, a liability is defined as an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.

Long-term investments

Often referred to simply as "investments". Long-term investments are to be held for many years and are not intended to be disposed of in the near future. This group usually consists of four types of investments:

1. Investments in securities such as bonds, common stock, or long-term notes.
2. Investments in fixed assets not used in operations (e.g., land held for sale).
3. Investments in special funds (e.g., sinking funds or pension funds).

Different forms of insurance In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the insurance; an insured or policyholder is the person or may also be treated as long term investments.

Fixed assets

Also referred to as PPE (property, plant, and equipment), these are purchased for continued and long-term use in earning profit In neoclassical economics, economic profit, or profit, is the difference between a firm's total revenue and its opportunity costs. In classical economics profit is the return to the employer of capital stock in any productive pursuit involving labor. These two definitions are actually the same. In both instances economic profit is the return to an in a business. This group includes as an asset land In economics, land comprises all naturally occurring resources whose supply is inherently fixed. Examples are any and all particular geographical locations, mineral deposits, and even geostationary orbit locations and portions of the electromagnetic spectrum. Natural resources are fundamental to the production of all goods, including capital goods, buildings Buildings come in a wide amount of shapes and functions, and have been adapted throughout history for a wide number of factors, from building materials available, to weather conditions, to land prices, ground conditions, specific uses and aesthetic reasons, machinery A machine is a device that uses energy to perform some activity. In common usage, the meaning is that of a device having parts that perform or assist in performing any type of work. A simple machine is a device that transforms the direction or magnitude of a force without consuming any energy. The word "machine" is derived from the Latin, furniture Furniture is the mass noun for the movable objects intended to support various human activities such as seating and sleeping in beds, to hold objects at a convenient height for work using horizontal surfaces above the ground, or to store things. Storage furniture such as a nightstand often makes use of doors, drawers, shelves and locks to contain,, tools A tool is a device that can be used to produce or achieve something, but that is not consumed in the process. Colloquially a tool can also be a procedure or process used for a specific purpose. Tools that are used in particular fields or activities may have different assignations such as Instrument, Utensil, Implement, Machine, Apparatus, and certain wasting resources e.g., timberland and minerals A mineral is a naturally occurring solid chemical substance that is formed through geological processes and that has a characteristic chemical composition, a highly ordered atomic structure, and specific physical properties. By comparison, a rock is an aggregate of minerals and/or mineraloids and does not have a specific chemical composition. They are written off against profits In accounting, profit is the difference between price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses over their anticipated life by charging depreciation expenses (with exception of land assets). Accumulated depreciation is shown in the face of the balance sheet or in the notes.

These are also called capital assets in management accounting.

Intangible assets

Intangible assets lack physical substance and usually are very hard to evaluate. They include patents, copyrights, franchises, goodwill, trademarks, trade names, etc. These assets are (according to US GAAP) amortized to expense over 5 to 40 years with the exception of goodwill.

Websites are treated differently in different countries and may fall under either tangible or intangible assets.

Tangible assets

Tangible assets are those that have a physical substance and can be touched, such as currencies, buildings, real estate, vehicles, inventories, equipment, and precious metals.

References

1. ^ ^{a b} Sullivan, arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 272. ISBN 0-13-063085-3. http://www.pearsonschool.com/index.cfm?locator=PSZ3R9&PMDbSiteId=2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4.
2. ^ J. G. Siegel, N. Dauber & J. K. Shim, "The Vest Pocket CPA", Wiley, 2005.

   There are different methods of assessing the monetary value of the assets recorded on the Balance Sheet. In some cases, the Historical Cost is used; such that the value of the asset when it was bought in the past is used as the monetary value. In other instances, the present fair market value of the asset is used to determine the value shown on the balance sheet.

3. ^ J. Downes, J.E. Goodman, "Dictionary of Finance & Investment Terms", Baron's Financial Guides, 2003
4. ^ ^{a b} J. Downes, J.E. Goodman, "Dictionary of Finance & Investment Terms", Baron's Financial Guides, 2003; and J. G. Siegel, N. Dauber & J. K. Shim, "The Vest Pocket CPA", Wiley, 2005.
5. ^ The International Accounting Standards Board, IASB
6. ^ IASB.org, IFRS
7. ^ Intermediate Accounting--Kieso, et. al

Categories: Generally Accepted Accounting Principles

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• Intangible Asset Finance: Encyclopedia

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