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What is an Asset?

by C Roberts

In the world of financial accounting, what exactly is an asset? It is a tangible or intangible asset that is not depreciated over time and is usually held in a fixed quantity. A common example of an asset would be money, but there are many others that also fall into this category. In accounting terminology, an asset is anything an entity or company owns or controls which has potential to create value over time.

Generally, assets are grouped into three categories: tangible, non-trading, and financial. This last category is where most of the confusion occurs because it includes any type of asset that does not generate revenue or income. A good example of this would be any type of inventory, such as raw materials.

If you were to group all of a company’s financial assets into one category, then this would be classified as a financial asset. The definition of a financial asset, therefore, encompasses both monetary (real) and non-monetary assets. It is important to note that while the purpose of an accounting statement is to determine the net worth of an entity, what is an asset is a term that means different things to different people. However, most people understand that if something has a particular value for some period of time, then it qualifies as an asset. For instance, if a person invests their savings in stocks, bonds, or other securities that have a certain value for a set period of time, then this person will be considered an investor.

What makes a person an asset? It may be a combination of several factors, including: ownership, value, liquidity, use, and history.

Most commonly, a tangible asset will be any tangible thing that has a specific value that cannot be changed, regardless of how much or how little is invested in the asset. For instance, a company’s inventory and machinery.

There are two types of intangible assets that are used in accounting statements. These are goodwill and the deferred tax balance sheet. Intangible assets are ones that cannot be used to make a profit for a company and, therefore, cannot be written off. For example, the patents, copyrights, and other intellectual property.

When it comes to figuring out what is an asset, a company’s financial statement includes three major types of assets, namely, fixed assets, variable assets, and creditable assets. These are the most commonly used categories. With all three types, it helps to include all of the types of assets within the organization.