Asset Accounts

Asset Accounts Definition

Asset Accounts are used to identify the exact usage of stakeholder’s capital (Debt + Equity). They are reported at book values and are depreciated/amortized in the case of fixed assets and provisioned/expensed for in the case of current assets in the P&L.

Changes in asset values on the books of a company have to reflect in either the Profit and Loss Statement or the Cash Flow Statement.

An example would be if accounts receivable increased on the books, it meant an outflow of cash on the Cash Flow StatementCash Flow StatementStatement of Cash flow is a statement in financial accounting which reports the details about the cash generated and the cash outflow of the company during a particular accounting period under consideration from the different activities i.e., operating activities, investing activities and financing activities.read more. Similarly, if inventories decreased in the books, it means an inflow of cash due to products getting sold. A decrease in the gross block is expensed on the P&L through depreciation, and an increase in the gross block is reflected by CapexCapexCapex or Capital Expenditure is the expense of the company's total purchases of assets during a given period determined by adding the net increase in factory, property, equipment, and depreciation expense during a fiscal year.read more capital expenditures under the Cash Flow Statement.

Asset-Accounts

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For eg:
Source: Asset Accounts (wallstreetmojo.com)

What do Asset Accounts tell us?

Once you are through with understanding how changes in asset reflect on the Financial StatementsFinancial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more, it is important to understand how investors look at asset accounts of individual companies and match it with the industry to identify operating trends. We can compare companies operating across different industries and compare how many $ of revenue a tech company generates for every $ of capital invested vs. a manufacturing company.

We can also compare companies operating in the same industry as Walmart, Target, and Costco to determine which of them are converting products to cash the fastest and most efficiently. Investors can also identify trends across the entire industry. E.g., An agrochemical company’s receivables could be continuously increasing due to the declining profitability of farmers. Such a trend would be visible across the Balance Sheet of the entire spectrum of agrochemical companies, and it helps an investor identify that the industry is going through stress.

List of Asset Accounts

What is a Fixed Assets Account?

How to analyze Fixed Asset?

What are the Current Assets?

How to analyze Current assets Account?

What is Financial Assets Account?

Financial assetsFinancial AssetsFinancial assets are investment assets whose value derives from a contractual claim on what they represent. These are liquid assets because the economic resources or ownership can be converted into a valuable asset such as cash.read more account is reported under Non-current as well as Current assets. The idea of the word current is to determine if it’s a short term investment or long term investment. Generally, liquid investments are reported under current assets, whereas non-liquid investments are reported under Non-current assetsNon-current AssetsNon-current assets are long-term assets bought to use in the business, and their benefits are likely to accrue for many years. These Assets reveal information about the company's investing activities and can be tangible or intangible. Examples include property, plant, equipment, land & building, bonds and stocks, patents, trademark.read more. Other types of assets include goodwill and deferred tax liabilities

Conclusion

Assets Accounts belong to the stakeholders, who are the debt and equity investors in the companyEquity Investors In The CompanyAn equity investor is that person or entity who contributes a certain sum to public or private companies for a specific period to obtain financial gains in the form of capital appreciation, dividend payouts, stock value appraisal, etc.read more. It is the responsibility of an investor to look at the assets reported by the company and understand its way of conducting business and if it will maximize value to shareholders in the future. Many companies are analyzed based on the assets they have on the books. The most common example is banks, as the intrinsic value of the bank is the interest it can generate from giving loans. Hence all these loans are assets for a bank, and the value of the bank is determined by its Price to Book ratio relative to other banks. The book in this context is the book value of equityThe Book Value Of EquityThe book value of equity reflects the fund that belongs to the equity shareholders and is available for distribution to the shareholders. It is computed as the net amount remaining after deducting all of the company's liabilities from its total assets.read more, which is the book value of assets – book value of

This article has been a guide to the Asset Accounts definition and its meaning. Here we discuss the list of Asset Accounts and its types – Fixed Assets Account and current Assets accounts, along with practical examples. You can learn more about accounting with the following articles –

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