Assets

1. Definition

Assets are resources controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity.

In simpler terms, an asset is anything the company owns that has value and can be used to generate cash or reduce expenses in the future.

2. Classification: Liquidity

On the Balance Sheet, assets are listed in order of Liquidity — how quickly they can be converted into cash.

A. Current Assets

Assets expected to be sold, consumed, or converted to cash within one year (or one operating cycle). * Cash & Cash Equivalents: Bank deposits and highly liquid investments. * Accounts Receivable (A/R): Money owed to the company by customers for goods or services delivered on credit. * Inventory: Raw materials, work-in-progress, and finished goods ready for sale.

B. Non-Current Assets

Assets that will be held for longer than one year. These are the long-term engines of the business. * Property, Plant, and Equipment (PP&E): Tangible assets like land, buildings, machinery, and vehicles used in operations. * Intangible Assets: Non-physical assets such as patents, trademarks, copyrights, and goodwill. * Long-term Investments: Stocks or bonds held for a period longer than a year.

3. Key Principles

• Historical Cost: Assets are generally recorded at their original purchase price, not their current market value. This ensures objectivity but may not reflect the asset's real-world value today.
• Depreciation: For tangible assets (except land), the cost is allocated as an expense over the asset's useful life to reflect wear and tear.

4. Why It Matters

• Operational Capacity: The composition of assets shows what the company needs to run its business (e.g., a manufacturing firm needs heavy machinery/PP&E, while a tech firm might have high Intangible Assets).
• Asset Efficiency: Investors analyze how well a company utilizes its assets to generate revenue (Asset Turnover Ratio).