Asset

In business and accounting an asset is anything owned which can produce future economic benefit, whether in possession or by right to take possession, by a person or a group acting together, e.g. a company, the measurement of which can be expressed in monetary terms. Asset is listed on the balance sheet. It has a normal balance of debit.

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Assets may be classified in many ways. In a company's balance sheet certain divisions are required by generally accepted accounting principles (GAAP), which vary from country to country. Below is presented classification according to US GAAP.

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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. 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:

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• Cash - it is the most liquid asset, which includes currency, available funds on deposit at the bank, and negotiable instruments (e.g., money orders, checks, bank drafts).
• Short-term investments - include securities bought and held for sale in the near future to generate income on short-term price differences (trading securities).
• Receivables - usually reported as net of allowance for uncollectibles.
• Inventory - trading these assets is a normal business of a company. Usually is reported in the balance sheet at lower of cost or market.
• Prepaid expenses - these are expenses paid in cash and recorded as assets before they are used or consumed (common example is insurance). See also adjusting entries.

The phrase net current assets (also called working capital) is often used and refers to the total of current assets less the total of current liabilities.

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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 in the near future. This group usually consists of four types of investments:

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

Fixed assets

Also referred to as PPE (property, plant, and equipment). Assets which are purchased for continued and long-term use in earning profit in a business. This group includes land, buildings, machinery, furniture, tools, wasting resources (timberland, minerals), etc. They are written off against profits over their anticipated life by charging depreciation expenses (with exception of land). Accumulated depreciation is shown in the face of the balance sheet or in the notes.

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These are also called capital assets in management accounting, especially when intangibles are considered.

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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 exception of goodwill.

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Other assets

This section includes a high variety of assets, most commonly:

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• long-term prepaid expenses
• long-term receivables
• intangible assets (if they represent just a very small fraction of total assets)
• property held for sale.

In a lot of cases this section is too general and broad, because assets could be classified into four above categories.

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