Examples of Assets in Accounting
Below are examples of the most common assets in accounting.
- Temporary Investments
- Accounts Receivables
- Prepaid Insurance
- Property, Plant & Equipment
Assets can be divided into subcategories which are mentioned below
Example of Most Common Assets in Accounting
#1 – Current Assets (Short Term in Nature)
- Cash: It includes the bank balance and cash available in the business.
- Temporary Investments: It includes investment in short term money market instruments, debt instruments, mutual funds or investment in the public equity of other business. The intent here is to park surplus cash in more productive places then bank accounts in order to yield a higher return from your investments over a short period of time.
- Accounts Receivables: It includes receipt claim from your customers for future payment of your credit sale.
- Inventory: It includes the stock of the business like for an automobile company; cars produced will be their inventory as their main motive is to sell them.
- Prepaid Insurance: This may sound unusual but insurance premium that we pay in advance is actually our short term assets as it helps us to mitigate any contingent liability that may arise in future from that item against which we took insurance. Let’s take the example of auto insurance; we take it because if an accident happens then the auto insurance company will pay us for the damages thereby reducing our hassle and for that, they charge an annual premium and hence it is a short term asset for us.
#2 – Capital Assets (Long Term in Nature)
- Property, Plant & Equipment: It includes all the properties/offices, plants/factories and equipment/machinery/furniture which is owned by the company and whose benefit can be enjoyed for the long term. For example-factories, plant, machinery, furniture and other equipment.
- Land: It includes a plot that can be used to build your office or factory which can help you run your operations.
- Buildings: We need land in order to construct buildings that can be further used for other commercial activities.
#3 – Intangible Assets (They can be either Long Term or Short Term in Nature)
There are mainly for 4 intangible assets which generally show up in the balance sheet most of the times and they are mentioned below:
- Goodwill: It represents and quantifies the brand value which the company creates for themselves over the course of their business. It actually represents the fact that the company’s customer base is loyal and will come back to purchase the product again from the very same company. Let’s take the example of companies like-Apple, Nike, Tesla, IKEA etc. In case of Apple which makes smartphones charge a premium over other comparable devices because of their goodwill and this is what makes people come back, again and again, to purchase the phone from Apple only.
- Trademark: It is the logo of the business which creates its special image in the minds of its customers. We can again look at the logo of Apple which indicates a level of superiority over other phones and that is why people owning that product think that they own something special. It also shows the philosophy of the brand like in case of the Hyundai logo, they have tried to show two people shaking hands highlighting the company’s focus towards customer needs and satisfaction.
- Patents: They are the inventions which the company make and since they have invested heavily to bring out something new and hence no other company can use it without the inventor’s permission over a specific period of time (generally 20 years). For example, various technological innovations done by companies like Apple, Google, Motorola are held as patents in their books and cannot be copied by their competitors for a certain period of time and the only way to use it is to take permission from the inventor and pay a royalty over its usage.
- Copyrights: They also the creation of certain items like songs, movies, photographs which only be used by other people after taking permission from its creator. For example one of the companies by the name “Getty Images” is in the business of purchasing photographs and videos from the photographers and then selling it to a wide variety of audiences at a very nominal fee as compared to what they have paid to the original photographer.
So these are some of the intellectual properties that the businesses can own. We cannot see them physically but can rather feel their impact in our lives.
In all the above cases, the usage is the most important aspect which determines whether an item should be considered as a current asset or capital asset. Below are some examples of Assets in accounting which will illustrate the change in nature of an item with the change in the intent for its usage:
- House or land: It is a long term asset for most of us because it requires a huge investment and it will provide benefits over a long course of time but for real estate developers (like- DLF, Trump etc.), it is considered as their inventory because they are in in the business of purchase/sale of land and houses. Similarly, even for property dealers, it will be their inventory.
- Furniture: It is a long term asset for us but for furniture manufacturers (like- IKEA etc.) and for furniture showrooms, it will be a part of their inventory.
- Cars: It is also a long term asset for us but for Automobile companies (like- Ford, Toyota etc.) and car showrooms, it will be a part of their inventory.
So what really matters is how you use and perceive the assets and this will determine its classification in your balance sheet.
This has been a guide to Examples of Assets in Accounting. Here we discuss the most common classification of assets in accounting including Current Assets, Capital Assets, and Intangible Assets. You may learn more about accounting from the following articles –