Assets refer to resources owned and controlled by an entity. Technically, an asset is defined as a "resource controlled by an entity as a result of past event and from which future economic benefits are expected to flow to the entity".
In a Nutshell
Assets refer to properties owned and controlled by a business entity, either for short-term or long-term use.
Current assets are short-term in nature and include: cash & cash equivalents, trade receivables, short-term investment, inventory, and prepaid expenses.
Non-current assets pertain to long-term resources. Examples are: land, building, machinery, equipment, long-term investments, intangibles, and other assets usually expected to be realized in more than a year.
By studying the definition above, we can draw important points that would help us understand assets better.
- A resource – tangible or intangible property that is used by the entity in its activities
- Controlled by the entity – the entity should have ownership and control over the property for it to be recognized as an asset of that entity
- A result of past transaction – an asset can be acquired through purchase, exchange, rendering of service, sale of goods, donations, and other transactions or events.
- Provides future economic benefits – the resource is used to contribute directly or indirectly to the objective of the company of generating profits. A building is used to house a company's operations; supplies such as paper and ink are used to document business activities; cash is used to purchase materials and pay for expenses, etc.
Assets are classified into two: current assets and non-current assets. Current assets are those that are expected to be realized or used within the company's normal operating cycle or 1 year, whichever is longer. They include properties that are held primarily for the purpose of selling them in the near future. In essence, current assets are short-term in nature. Non-current assets, on the other hand, are properties held for a long period of time (i.e. more than 1 year).
Here's a list of asset accounts under each line item, and classified into current and non-current:
- 1. Cash and Cash Equivalents
- Cash on Hand - consists of un-deposited collections
- Cash in Bank - made up of bank accounts that are unrestricted as to withdrawal
- Short-term cash funds such as Petty Cash Fund, Payroll Fund, Tax Fund, etc.
- Cash Equivalents are short-term investments with very near maturity dates making them assets that are "as good as cash".
- 2. Trading Securities or "Financial Assets at Fair Value"
- Trading Securities are investments in stocks that are held with the purpose of trading (speculative investments)
- 3. Trade and Other Receivables
- Accounts Receivable - receivables from customers arising from rendering of services or sale of goods
- Notes Receivable - receivables from customers which are backed up by promissory notes
- Other receivables representing claims from other parties such as: Rent Receivable, Interest Receivable, Dividend Receivable, etc.
- Allowance for Bad Debts - a contra-asset account deducted from Accounts Receivable. It represents the estimated uncollectible amount of the receivable.
- 4. Inventories
- Inventories are
assets that are held for sale in the normal operations of the business. A service business normally has no inventory account.
- Merchandising businesses normally maintain one inventory account – Merchandise Inventory.
- Manufacturing businesses have several inventories: Raw Materials Inventory, Work in Process Inventory, Finished Goods Inventory, and Factory Supplies Inventory.
- 5. Prepaid Expenses or Prepayments
- Prepayments consists of costs already paid but are yet to be used or incurred. Common prepaid expense accounts include: Office Supplies, Service Supplies, Prepaid Rent, and Prepaid Insurance.
- 1. Property, Plant, and Equipment (PPE) also known as Fixed Assets
- PPE includes tangible assets that are expected to be used for more than one year. PPE accounts include: Land, Building, Machinery, Service Equipment, Computer Equipment, Delivery Equipment, Furniture and Fixtures, Leasehold Improvements, etc.
- Take note that land that is not used by the business in its operations but is rather held for appreciation is not part of PPE but of investments.
- Accumulated Depreciation - a contra-asset account deducted from the related PPE account. It represents the decrease in value of the asset due to continuous use, passage of time, wear & tear, and obsolescence.
- 2. Long-Term Investments
- Investment in Long-Term Bonds, Investment in Associate, Investment in Subsidiary, Investment Property, Long-Term Funds; these are investments that are intended to be held for more than one year.
- 3. Intangibles
- An intangible has no physical form but from which benefits can be derived and its cost can be measured reliably.
- Intangibles include Patent for inventions, Copyright for authorship, compositions and other literary works,Trademark, Franchise, Lease Rights, and Goodwill.
- 4. Other Non-Current Assets
- Assets which cannot be classified under the usual non-current asset categories
- Includes: Advances to Officers, Directors, and Employees not collectible within one year, Cash in Closed Banks, and Abandoned or Idle Property
There you have a comprehensive list of asset accounts. Take note that different companies may use different (although similar) sets of account titles. It will depend upon the company's business and industry, and what specific accounts were adopted in its chart of accounts.