In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can be converted into cash (although cash itself is also considered an asset).
The balance sheet of a firm records the monetary value of the assets owned by that firm. It covers money and other valuables belonging to an individual or to a business.
Assets can be grouped into two major classes: tangible assets and intangible assets. Tangible assets contain various subclasses, including current assets and fixed assets. Current assets include cash, inventory, accounts receivable, while fixed assets include land, buildings and equipment.
Intangible assets are non-physical resources and rights that have a value to the firm because they give the firm an advantage in the marketplace. Intangible assets include goodwill, copyrights, trademarks, patents, computer programs, and financial assets, including financial investments, bonds, and companies' shares.
IFRS (International Financial Reporting Standards), the most widely used financial reporting system, defines: "An asset is a present economic resource controlled by the entity as a result of past events.
An economic resource is a right that has the potential to produce economic benefits."
The definition under US GAAP (Generally Accepted Accounting Principles used in the United States of America): "An asset is a present right of an entity to an economic benefit."
CON 8.4 provides the following discussion of the nature of an asset:
E17: An asset has the following two essential characteristics:
(a) It is a present right
(b) The right is to an economic benefit.
E18:The combination of those two characteristics allows an entity to obtain the economic benefit and control others' access to the benefit. A present right of an
entity to an economic benefit entitles the entity to the economic benefit and the ability to restrict others' access to the benefit to which the entity is entitled.
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Financial accounting is a branch of accounting concerned with the summary, analysis and reporting of financial transactions related to a business. This involves the preparation of financial statements available for public use. Stockholders, suppliers, banks, employees, government agencies, business owners, and other stakeholders are examples of people interested in receiving such information for decision making purposes. Financial accountancy is governed by both local and international accounting standards.
Accounts receivable, abbreviated as AR or A/R, are legally enforceable claims for payment held by a business for goods supplied or services rendered that customers have ordered but not paid for. The accounts receivable process involves customer onboarding, invoicing, collections, deductions, exception management, and finally, cash posting after the payment is collected. These are generally in the form of invoices raised by a business and delivered to the customer for payment within an agreed time frame.
Net worth is the value of all the non-financial and financial assets owned by an individual or institution minus the value of all its outstanding liabilities. Financial assets minus outstanding liabilities equal net financial assets, so net worth can be expressed as the sum of non-financial assets and net financial assets. This concept can apply to companies, individuals, governments, or economic sectors such as the financial corporations sector, or even entire countries. Net worth is a combination of financial assets and liabilities.
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