Examples of Assets in Accounting
Examples of assets include all current, capital and intangible assets owned by a company and used for accounting purpose. Some of these are cash, accounts receivable, building, plant and equipment, goodwill and patents.
Below are examples of the most common assets in accounting.
- Temporary Investments
- Accounts ReceivablesAccounts ReceivablesAccounts receivables is the money owed to a business by clients for which the business has given services or delivered a product but has not yet collected payment. They are categorized as current assets on the balance sheet as the payments expected within a year.
- Prepaid InsurancePrepaid InsurancePrepaid Insurance is the unexpired amount of insurance premium paid by the company in an accounting period. This portion of unexpired insurance is an asset and will be shown in the balance sheet of the company.
- Property, Plant & Equipment
- GoodwillGoodwillIn accounting, goodwill is an intangible asset that is generated when one company purchases another company for a price that is greater than the sum of the company's net identifiable assets at the time of acquisition. It is determined by subtracting the fair value of the company's net identifiable assets from the total purchase price.
Assets can be divided into subcategories which are mentioned below
Examples of Assets
#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 instrumentsDebt InstrumentsDebt instruments provide finance for the company's growth, investments, and future planning and agree to repay the same within the stipulated time. Long-term instruments include debentures, bonds, GDRs from foreign investors. Short-term instruments include working capital loans, short-term loans., mutual funds, or investment in the public equity of other businesses. 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 claims 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 liabilityContingent LiabilityContingent Liabilities are the potential liabilities of the company that may arise at some future date as a result of a contingent event that is beyond the company's control. that may arise in the 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. 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 Intangible AssetsIntangible Assets are the identifiable assets which do not have a physical existence, i.e., you can't touch them, like goodwill, patents, copyrights, & franchise etc. They are considered as long-term or long-living assets as the Company utilizes them for over a year. 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 throughout their business. It 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 the 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 the 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 makes 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 (generally 20 years). For example, various technological innovations done by companies like Apple, Google, Motorola are held as patents in their books. Their competitors cannot copy them for a certain period, 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 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 matters is how you use and perceive, and this will determine its classification of assets in your balance sheet.
This article 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 –