Assets are any thing that can be owned by a company or an individual person. These are able to be sold for cash. Commonly, assets produce income or give value to the owner.
In the world of financial accounting, assets prove to be economic resources. They can be physical objects or intangible concepts that can be utilized and owned to create value. Assets are deemed to have real and positive value for their owners. Assets must also be convertible into cash, which itself is furthermore considered to be an asset.
There are several different types of assets as measured by accountants and accounting processes. These might be current assets, longer term assets, intangible assets, or deferred assets. Current assets include cash and other items that are readily and easily able to be sold to raise cash. Longer term assets are those that are held and useful for great periods of time, including such physical items as factory plants, real estate, and equipment. Intangible assets are non physical rights or concepts, like patents, trademarks, goodwill, and copyrights. Finally, deferred assets are those that involve monies spent now for the costs in the future of things like rent, insurance, or interest.
Though tangible, physical assets are not hard to conceptualize, intangible assets are often confusing for people to understand. Even though these are not physical items that may be touched, they still have value that can be controlled and sold to raise cash. Intangible assets include rights and resources which provide a company with a form of marketplace advantage. These can cover many different elements beyond those listed above, such as computer programs, stocks, bonds, and even accounts receivable.
On balance sheets, tangible assets are commonly divided into further categories. These include fixed assets and current assets. Fixed assets are objects that are immobile or not easily transported, such as buildings, office locations, and equipment. Current assets are comprised of inventory that a business holds. Balance sheets of companies keep track of a firm’s assets and their value as expressed in monetary terms. These assets are both the cash and other items that the business or person owns.
Assets should never be confused with liabilities. Assets create positive cash flow that represents value or money coming into a business, organization, or individual’s accounts. Liabilities are obligations that have to be paid and that create negative cash flow, or take money out of a business, individual, or organization’s accounts. As an example of the difference between the two, assets would be houses that are rented out that bring in more rent every month than the expenses, interest, and upkeep of the houses. Liabilities would be homes that have payments that must be paid every month and do not provide any income stream to effectively offset this.