Things of Value Owned by a Firm Are Called Its Assets

Assets are the building blocks of a firm's financial health. A firm's assets can be tangible or intangible, and they can be used to generate revenue or increase the firm's value.

Cash is a common asset held by firms, and it's often considered the most liquid asset. Firms can use cash to pay bills, invest in new projects, or distribute dividends to shareholders.

Accounts receivable is another type of asset that firms hold. It represents the amount of money that customers owe to the firm for goods or services provided.

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Assets are present economic resources controlled by an entity as a result of past events. This is according to IFRS, the most widely used financial reporting system.

An economic resource is a right that has the potential to produce economic benefits, which is also a key part of the IFRS definition.

Assets are a present right of an entity to an economic benefit, as defined under US GAAP.

Assets can be categorized into two main types: tangible and intangible. Tangible assets are physical items that can be touched and owned, such as a manufacturing company's factory equipment or a technology company's computers.

Tangible assets can be further divided into current and fixed assets. Current assets are liquid assets that can be easily converted into cash within a year, such as cash in hand, cash at bank, and bills receivable. Fixed assets, on the other hand, are non-current assets that have a useful life of more than a year, such as trucks, machinery, and office furniture.

Examples of tangible assets include motor vehicles, buildings, machinery, equipment, cash, and accounts receivable. The useful life of a fixed asset varies according to its type, with office furniture and fixtures having a useful life of seven years, and cars and trucks having a useful life of five years.

Here's a table summarizing the main types of tangible assets:

Intangible assets, on the other hand, are non-physical items that have value but cannot be touched or owned, such as a company's brand loyalty or name recognition.

Examples of assets include tangible items like trucks, machinery, office furniture, and buildings, which are used in business operations for more than a year. These types of assets are recorded on the balance sheet.

Personal assets can include a home, land, and financial securities. Business assets can include motor vehicles and cash.

Fixed assets are needed to run a business continually, and they include assets such as trucks, machinery, and office furniture. Tangible assets like these can generate revenue for a company.

Business assets can also include intangibles like patents and copyrights. These types of assets are not physical but still have value.

Fixed assets are non-current assets that a company uses in its business operations for more than a year. They are recorded on the balance sheet, usually as property, plant, or equipment.

Examples of fixed assets include trucks, machinery, office furniture, buildings, and factory equipment. Companies in various industries, such as manufacturing, technology, and oil & gas, rely heavily on fixed assets to produce goods and services.

The money that a company generates using tangible assets is recorded on the income statement as revenue. Fixed assets are needed to run a business continually.

Here are some examples of fixed assets from different industries:

Fixed assets have an expected life of greater than a year and are subject to depreciation. According to the general depreciation system (GDS), the Internal Revenue Service (IRS) assigns office furniture and fixtures a useful life of seven years, while cars and trucks get a useful life of five years.

Depreciation is an accounting adjustment that allocates the cost of the asset over time. Companies can use different methods, such as the straight-line method or the accelerated method, to calculate depreciation.

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Current assets are expected to be sold or used within one year, making them easily liquidated. This is a key difference from fixed assets.

Fixed assets, also known as noncurrent assets, are expected to be in use for longer than one year. They are not easily liquidated.

Unlike current assets, fixed assets can undergo depreciation over time.

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Asset Accounting is a crucial aspect of a company's financial management. It involves recording, classifying, and reporting the value of assets on the balance sheet.

Tangible assets, such as inventory and plant and equipment, are recorded on the balance sheet initially and then expensed on the income statement as they are used up. This process is called depreciation, which helps reflect the wear and tear on tangible assets during their lifetime.

Companies must also account for intangible assets, which can be more challenging to value. Intangible assets, such as patents and licenses, are initially recorded on the balance sheet and then expensed on the income statement through amortization, which spreads out the cost of the asset over its useful life.

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Accounting for assets is a crucial aspect of financial management. In the financial accounting sense, it's not necessary to have title (a legally enforceable ownership right) to an asset; control of the rights (economic resource) the asset represents is enough.

Assets are reported on the balance sheet, and the accounting equation is the mathematical structure of the balance sheet, relating assets, liabilities, and owner's equity. Assets can be divided into current and non-current (a.k.a. fixed or long-lived) sub-classifications.

Current assets are generally subclassified as cash and cash equivalents, receivables, inventory, and accruals (such as pre-paid expenses). Non-current assets are generally subclassified as investments (financial instruments), property, plant and equipment, intangible assets (including goodwill) and other assets (such as resources or biological assets).

The IFRS conceptual framework explains that an entity controls an economic resource if it has the present ability to direct the use of the economic resource and obtain the economic benefits that may flow from it.

Here's a comparison of current assets, liquid assets, and absolute liquid assets:

Tangible assets incur costs related to their maintenance, including general maintenance and repair expenses, insurance premiums, or property taxes.

Companies recognize depreciation expenses over the asset's useful life to reflect its diminishing value, as seen in Apple's "Condensed Consolidated Statements of Operations (Unaudited)".

Tangible assets like buildings, machinery, and inventory have a limited lifespan and require periodic maintenance to remain operational.

You can't just buy a building and forget about it - you'll need to budget for property taxes and insurance premiums, as Ferrari has to do with its brand valuation.

Intangible assets involve costs associated with their acquisition, legal protection, and research and development.

These costs can include acquisition costs for patents or copyrights, legal and registration fees to establish ownership rights, or R&D expenses for creating or enhancing intellectual property and innovative products.

For example, Exxon Mobil's 2023 Annual Report highlights the importance of R&D expenses in creating new products and services.

Here's a breakdown of the types of costs associated with tangible and intangible assets:

Assets are categorized by their time horizon of use, with current assets expected to be sold or used within one year. Current assets are easily liquidated, unlike fixed assets.

Current assets include cash, prepaid expenses, bills receivable, and loans and advances (short term). These assets are typically recorded on the balance sheet as part of a company's working capital.

Fixed assets, on the other hand, are non-current assets that a company uses in its business operations for more than a year. They are recorded on the balance sheet as property, plant, or equipment.

Tangible assets, such as trucks and machinery, are a type of fixed asset that can be touched. They are essential for a company's operations and are recorded on the balance sheet.

Here's a breakdown of the different types of assets:

Cash and cash equivalents, such as marketable securities, are the most liquid of all assets. They are recorded on the balance sheet and are essential for a company's short-term financial needs.

Asset management is crucial for any business, as it involves managing the resources that will provide a future benefit to the owner. A company's assets are reported on its balance sheet.

Cash is the most liquid of all assets and appears on the first line of the balance sheet. It includes cash equivalents, which are assets with short-term maturities under three months or those that can be liquidated on short notice, such as marketable securities.

Companies disclose what equivalents they include in the footnotes to the balance sheet. As companies recover accounts receivables, the account decreases, and cash increases by the same amount.

Assets can be classified as current, fixed, financial, or intangible for accounting purposes. A current asset, such as cash, is expected to be converted into cash within a year or less.

An asset heavy company invests too much of its capital in assets. This can be a significant burden, especially for businesses in sectors like manufacturing, medical, engineering, and chemical.

Companies like AirBNB, Uber, and Zomato operate as light asset model businesses. They achieve this by leveraging digital platforms and minimizing their reliance on physical assets.

Sectors like manufacturing require a substantial amount of capital to invest in assets, which can be a major expense. This can limit the flexibility of the company to respond to changing market conditions.

Digital businesses, on the other hand, can often operate with very few to no assets, which allows them to be more agile and responsive to customer needs.

An asset is a resource that is expected to provide a future benefit to its owner. This can be a tangible asset like a piece of machinery or an intangible asset like a copyright.

For accounting purposes, assets are commonly classified as current, fixed, financial, or intangible. This classification helps businesses understand the type of asset they have and how it should be valued.

Tangible assets depreciate over time, while intangible assets can appreciate in value or remain stable. This means that intangible assets may be more susceptible to market demand and technological advancements.

Here's a breakdown of the key differences between tangible and intangible assets:

Tangible assets are generally easier to buy, sell, and liquidate, while intangible assets face risks related to obsolescence, infringement, or changes in market conditions.

Asset Valuation is a crucial aspect of understanding the value of a company's assets.

Tangible assets have a physical form, making them easier to value. A manufacturing company may find great value in having a manufacturing line it can touch.

Intangible assets, on the other hand, don't have a physical form, but are still vital to a company's success. Items like brand loyalty and name recognition are still vitally important to a company.

Each type of asset has a different type of value, and both are essential for a company's overall worth.

Assets can be tangible or intangible, each with its own unique value.

Tangible assets are physical objects that can be touched, like a manufacturing line.

Intangible assets, on the other hand, have value but can't be physically touched, such as a strong customer list.

Brand loyalty and name recognition are also types of intangible assets that are vital to a company's success.

Each type of asset has its own value, and companies need both to thrive.

A firm's balance sheet is a snapshot of its financial situation at a given point in time. It's a crucial tool for understanding a company's assets, liabilities, and equity.

The balance sheet is divided into two main sections: assets and liabilities and equity. Assets are things of value owned by the firm, such as cash, accounts receivable, and inventory.

Cash is the most liquid of all assets and appears on the first line of the balance sheet. It includes cash in hand and cash at bank.

Here's a comparison of current assets, liquid assets, and absolute liquid assets:

Accounts receivable is another important asset that includes the balance of all sales revenue still on credit, net of any allowances for doubtful accounts.

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Assets are resources that provide a future benefit to their owner, and they can be either tangible or intangible. Tangible assets, like a piece of machinery, can depreciate over time, while intangible assets, like a copyright, can appreciate in value or remain stable.

An asset's value can be affected by its transferability and marketability, which can vary depending on factors like market demand and legal protections. For example, a used car is relatively easy to buy and sell, but a customer loyalty program might be harder to transfer or value.

Assets are categorized as current, fixed, financial, or intangible for accounting purposes, and they can generate cash flow, reduce expenses, or improve sales.

Shareholders' Equity is a crucial aspect of a company's financial health. It represents the value of funds that shareholders have invested in the company.

Shareholders' Equity starts with the initial investment made by shareholders when a company is first formed. For example, an investor may seed a company with $10M.

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Shareholders can increase their Equity by adding more funds to the company or by retaining profits. In the example, the investor's initial $10M investment is reflected in the company's Share Capital.

Retained Earnings play a significant role in Shareholders' Equity. It's the total amount of net income the company decides to keep.

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Tangible assets tend to depreciate over time, but intangible assets can appreciate in value or remain stable.

Intangible assets are recorded at their acquisition cost if purchased, or at fair value if acquired through a business combination, which is different from tangible assets.

Tangible assets can be easily bought, sold, and liquidated, like a used car in the market, but intangible assets can be harder to value and transfer due to factors like market demand and uniqueness.

Intangible assets face risks related to obsolescence, infringement, or changes in market conditions, whereas tangible assets are more susceptible to physical risks like damage, theft, or natural disasters.

Tangible assets are subject to depreciation, but intangible assets are often subject to amortization, which affects how their value is recorded on a company's balance sheet.

The transferability and marketability of intangible assets can vary significantly, making them harder to value and sell compared to tangible assets.

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Manufacturing companies have a high proportion of tangible assets, which include factory equipment, computers, and buildings. This is because they require these assets to produce goods.

Technology companies, like those in the smartphone and computer industry, also use tangible assets to produce their goods. They need factories, equipment, and other physical assets to manufacture their products.

The oil and gas industry is extremely capital-intensive, requiring significant amounts of money to finance the purchase of tangible assets like oil rigs and drilling equipment. Companies in this industry own a large number of fixed assets that are tangible.