19 August 2022

What is an Asset?

Assets are anything that holds value or a resource that can be converted into cash. Assets can be invested in, or owned by an individual, company, or government. Assets can generate revenue, or even generate benefits for a company. Assets are anything that holds value or a resource that can be converted into cash.

Main Points to Remember

  • The definition of an asset is something that has economic value and/or future benefits.
  • Machinery, financial securities, and patents are examples of assets that generate cash flows in the future.
  • A person’s assets may include a house a car, investment, artwork, or home furnishings.
  • In corporations, assets are listed on the balance sheet and compared to liabilities and equity.

Personal Assets

The personal assets of an individual or household are things of present or future value. Common examples of personal assets include:

  • Checking, savings, and money market accounts, physical cash, Treasury bills, and certificates of deposit.
  • Land with any property that is permanently attached to it and property in general.
  • Pensions, mutual funds, bonds, annuities, investments at large, life insurance policies and stocks.
  • Personal processions include but are not limited to, boats, jewellery, vehicles, antiques and collectables.

In essence, your net worth is derived by subtracting your liabilities from your assets, where assets are everything, you own, and liabilities are everything you owe. Your net worth is positive if your assets outweigh your liabilities; a negative net worth indicates that your liabilities outweigh your assets (i.e., you owe more than you have assets).

Business Assets

A company’s assets can include machines, property, raw materials, inventory, as well as intellectual property like patents, royalties, and other intellectual property rights that contribute to its production and growth.

An organization’s balance sheet shows its assets and how they are financed, whether it is through debt or equity. A typical balance sheet consists of two types of assets, which are used by the management to determine how efficiently the company uses its resources.

Current Assets

A current asset possesses the ability to be converted into cash within a fiscal year or operating cycle. Current assets facilitate investment and day-to-day operations.

For example:

  • Inventory: Raw materials used to create goods or finished goods ready for sale.
  • Marketable securities: Liquid equity or debt securities
  • Cash: Cold hard cash, Treasury bills, certificates of deposit

Fixed Assets

An asset categorised as a fixed asset is one that has a long-term life cycle, i.e., an asset that has physical substance. Tangible fixed assets are listed as property, plant, and equipment (PP&E) on the balance sheet.

For example:

  • Land
  • Machinery
  • Vehicles

A key difference between current assets and non-current assets is a non-current asset (like fixed assets) cannot be quickly converted into cash for short-term investments or operational expenses whereas current assets are expected to be liquidated within a fiscal cycle.

LegacyScore provides you with an all-in-one platform to keep track of your assets and evaluate them within minutes. Visualise your net worth like never before by signing up for free today. Make informed decisions about your financial situation and start planning for today, tomorrow and after.

Sign up for free today at www.legacyscore.com

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