If you are a business student, you will agree with the fact that accounting is a tricky subject. There are numerous terms and concepts that you should know before working on an assigned task, which is why students seek accounting assignment help from professionals out there. This write-up will discuss the common terminology for the subject “assets.” You might be aware of the term, but did you know its classification into various types? If not, this article is for you. So, let us begin by learning the meaning of the term “assets”:
What Is an Asset?
Assets are the resources that a company or business entity owns. It is the source that has some economic value that a particular company or individual controls with the expectation of benefit in the future. These include inventories, trademarks, property, patents, and more. Owners of the specific business can convert these into cash whenever they want to.
The assets are on the left side of a business balance sheet, alongside the liabilities. There are various types into which assets can be classified. You must carefully identify the types and record them accordingly to make a perfect balance sheet for your business firm. It is indeed, a difficult task, so students seek assignment help from experts.
How Can Assets Be Classified?
You can classify the assets of a company on the basis of the purpose they solve. These are:
On the Basis of Convertibility
These are those assets that can be converted into cash when they are liquidated.
On the Basis of Physicality
These can or cannot have a physical form or existence.
On the Basis of Usage
These are the assets classified on the basis of the use they have.
These are the broad assets that are classified on the basis of the purpose they solve. Let us begin to know them in detail. Have a look:
Types of Assets in Accounting
Within each of the above classifications, there are two categories. So, let us move ahead to learn about these types of assets as well:
Types of Convertible Assets
Current assets are those assets that a business plans to use as cash within a year. You can use these assets in the day-to-day activities of a company. In other words, these are the assets you can convert into cash. Some examples of current assets are as follows:
It is another category of convertible assets. These are also known as fixed assets, hard assets, or long-term assets. You cannot convert these into cash or cash equivalents. In addition, you cannot convert them within one year. As these are long-term assets, they generally depreciate in terms of value over time. Some examples of fixed assets are listed below:
Types of Physical Existence Assets
It is another classification just like the one above, and within this classification, there are two categories. So, let us move ahead to learn about these types of assets as well:
Tangible assets are those physical items that add value to a particular company. These are those that you can touch or feel. In addition, they include all the current assets. Some examples of these assets are as follows:
These are the assets that you cannot touch, feel, or see. They do not have any physical form, including goodwill, trademarks, prepaid expenses, long-term investments, and more. These assets do not directly contribute to a company but help boost the value of the business over time. Some examples of these assets are listed below:
Types of Usage of Assets
These are the assets of a company that are essential to the operations of the business. You can use these in the daily operations of the company. In other words, these are used to generate revenue from the core activities of the business. Some examples of operating assets are as follows:
These are those assets that are not required for the daily operations of a business. But they help generate income for a firm. In simple terms, these assets are used in the long term by a business. Some examples of these assets are listed below; have a look:
Interest income from a fixed deposit
Bonus: Determining the Value of Assets
An asset’s worth is not necessarily equal to its initial cost. Examine elements like fair market value and depreciation while figuring out an asset’s worth.
The price at which your asset would sell in the present market is its fair market value. Your fair market value may be greater, less, or the same as the cost of the purchase. Analyze the fair market value of the asset to determine its cost. Obtain information about your asset and contrast it with other assets available on the market. To assess your assets, think about seeking advice from a specialist, such as an accountant.
As previously indicated, depreciation is the process of distributing an asset’s cost over a long period. Determine the depreciation expense to find the asset’s worth.
How to Record Assets?
You must list your assets on the balance sheet of your company in decreasing order according to their liquidity level.
An asset can be converted into cash faster. Your liquid assets should be listed first. Since you don’t need to convert it, always list your cash first.
Include current assets as well as fixed assets in your balance sheet. List current assets higher on your balance sheet because they are more liquid. Fixed assets are listed lower on your balance sheet since they are less liquid.
It was all about the common terminology of accounting, which is “assets.” This article has enough information about the classification of the assets. In addition, make you clear about them, it also has some examples to make it easy for you to understand. Even after this, if you have some doubts, you can seek accounting assignment help from the experts.