An asset is anything owned or controlled by a person, company, or country and has economic value, which is the maximum amount an individual may be willing to pay for a commodity in a free market economy. It is a resource that is owned or controlled by anyone expecting to benefit from it in the future in the form of cash, reduced expenses, and improved sales.
A corporation or company that owns assets increases its value, benefiting its operations. They then report their assets on their company’s balance sheet based on historical cost or original cost, which is adjusted for improvements or aging.
Different types of assets
Current assets: These are short-term economic resources that can be converted into cash within a year. These include accounts receivable, cash and cash equivalents, and prepaid expenses. Accounts receivables and inventory are reassessed periodically for their recoverability. If there is enough proof that these cannot be collected or is obsolete, firms may write off such assets.
Fixed assets: Equipment, buildings, and plants are examples of fixed assets. They are long-term resources that are adjusted for aging based on depreciation, which may or may not indicate the loss of the asset’s earning power.
Financial assets: These are investments in another company or institution’s assets and securities, such as sovereign and corporate bonds, preferred equity, stocks, and other hybrid securities.
Intangible assets: These are economic sources with no physical presence, like goodwill, copyrights, trademarks, and patents. They are accounted for differently, and can be tested or amortized for impairment every year.