Asset

Asset refers to value owned by a company or person. They can be transformed into cash based on demand. The term ‘asset’ in accounting appears in balance sheet and includes inventories, cash, goodwill and property rights. This term can be employed for generating cash flows.

Types of Assets

Tangible assets have physical existence such as real estate, equipment and building. This is classified into two sub-classes Current assets and Fixed assets. Current assets include cash and other assets that help converting into cash or are consumed within an operating cycle or a year. The assets involve:

• Inventory- The stock of goods in custody of an organization.

• Cash – includes deposit accounts, currency, money orders, bank drafts and checks.
• Accounts receivable- is the amount to be received in exchange for services and goods provided.

• Prepaid expenses- are the operating costs that are paid in advance for the products and services that will be used in the future.

• Short term investments- include securities to be sold in the future. They are investments done aiming to generate income on price movements for short-term.

• Long term investments- are bought and held for long term. Such investments include special funds, land, bonds, stocks and long-term notes.
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Fixed assets are the assets involving machinery, tools, buildings, land and furniture. These are properties purchased with the main aim of making profits. These assets also include plant, property and equipment.

Intangible assets are the assets that do not appear in the physical form making it difficult evaluating. Such intangible assets are tough to be sold or bought at fair price. Such assets include:

• Copyrights- are granted to the owner as legal rights granting exclusive rights. This intellectual property can be used by anyone only on receiving permission from the owner of the copyright.

• Goodwill- refers to the difference between fair and current market price of the net asset value.

• Patents- these are granted to a person as exclusive rights for a discovery or an invention for a particular period of time.

• Trademark- a unique attribute making a company easy to identify.

• Trade name- refers the name in which the business trade is done. This could be a legal or registered name and can be considered as the brand name of a company.

Asset characteristics

The software companies and its machinery are considered as assets, while the employees though produce value are not assets. The benefit of profit making enterprises contribute to net cash flows directly or indirectly, but the not- for- profit organizations contribute to services.