Almost every one of us has already heard of the term asset. It is usually paired with another person, an act of describing them as being valuable or worthy. You may have heard this from your employer as well: “You are an asset to this company.” Whether this is a true statement or otherwise, we might not know for sure.
However, it is essential to understand the context of the word before we interpret it. The term asset is also used a lot in business, and it denotes value too.
What Is An Asset?
In the most legal sense, an asset is anything that has worth in your possession. Whether it is your house, car, or other properties, it is considered as such. It is a part of your economic status and reflects your wealth. As long as it has monetary value, then you can consider it as an asset.
However, there are some nuances regarding the use of this terminology, and it is pivotal that you must know how it applies to your daily life. It is also necessary to understand the concept so that you can use it accurately in tasks like accounting.
Asset In Regards To Ownership and Establishment
There are many types of property that you might already own. However, in a business sense, they also need to generate income so that it can have an impact on your company’s image.
“Owning properties” essentially represents the power that your institution has. The more assets you have over your liabilities, the better your equity or net worth is. It is virtually impossible not to have any liability, though, so it would be best to increase your assets as much as possible.
In business terms, there are four kinds of assets. Each of them has its use as well as reasons for existence. For a company, it is important to secure them as much as possible. Better yet, you need to find a better way to invest them in something profitable. After all, it does become useless if it is just sitting there without any kind of work put into it.
Kinds of Assets
Current assets are just short-term sources for financial gain. You need to exchange or process them before one year is up, or else all of it would be wasted. This includes receivables and other cash sources. Remember, everything moves so fast in business. The ones that you have acquired now might not even be useful anymore in the future. Once you have accumulated these assets, process them right away. Your company can write this off as well, depending on the situation.
These are properties that are not going to depreciate quickly over time. You would not need to worry about their value because you will continue to use them. These long-term properties would always be there to be a part of your operations; thus, it is generating a lot of income. They might be the most expensive ones to invest and maintain, but their longevity off-sets it. Investments like machinery and tools are considered fixed assets, and you can easily resell them depending on their value and utility.
You may have heard of these already, as it can also be known as “stock.” These investments are more substantial, but they are usually virtual in nature. You need to keep a constant eye on them and track their value on the world market. This group includes insurance like IRA (Individual Retirement Account and private programs as well. You can certainly use these as a way to establish a better position in the market as you can now sell them under your name.
As the name implies, this group of assets includes properties that may not have a physical form. They are usually in the paper, though, like patents, agreements, and leases. You can take note of these in your accounting cycles, depending on their type and situation.
All the others can easily be recorded as they do have documented value. Even though depreciation happens, it is still easier to identify its worth. For these legalities, it will depend on several factors.
To summarize, assets are properties that can generate financial power for you or your company. There are four kinds, and you can acquire all of them. It would be a wiser decision to focus on what you or your business needs when you want to acquire any of these assets.
One way to manage your finances is through the professional services of an accounting firm. Annette Ferguson – Chartered Accountant and Certified Profit First Professional – can help you unlock financial strategies to improve the profitability of your business amidst an economic crisis. Book a call with us. You can also follow us on any of our social media channels and subscribe to our YouTube channel.