Any resource which has an economic value is termed as an asset. An asset is controlled by either an individual or an organization in the hope of generating benefits from it in the future. Doing business can also be termed as an activity in which assets are employed to generate profits through a mechanism.
Asset in Finance
Asset also holds a specific meaning in finance. It describes a particular item on the accounting balance sheet. The assets describe all the resources that are owned by a company. The concepts of assets can also be extended to the regional level and usually countries can hold resources which are considered as their financial assets.
It is important to remember that an asset generates value. It may be tangible or may even comprise of intangible qualities and properties. It simply needs to have an economic value and it should be possible to liquidate, if required. The basic accounting equations also define assets as the total sum of financial value that a company has. Here is the equation that represents assets in accounting.
Tangible and Intangible Assets
The above discussion mentions the two types of assets. Tangible assets are those that have a clear monetary value and physical presence. They are further divided into fixed assets and current assets. Fixed assets include buildings and equipment and they generally depreciate over time. Fixed assets are often termed as PPE or Property, Plant and Equipment assets.
Current assets relate to inventory and stock of products and raw materials. These assets can also refer to items that are considered equal in value to a cash transaction. The amounts receivable also falls into the current assets category. These may also present short term investments to profit from a change in prices.
Intangible assets, on the other hand, are not physical in nature and mostly represent the rights given to a company due to its particular position in the market. The copyrights and patents of an organization can be termed as its intangible assets. The goodwill of an organization for providing high quality services can also be considered as its intangible asset, which is gained through the company's performance over a period of time.
Intangible assets can also be financial assets such as promissory notes as well as bonds and stocks that may mature in the future and provide monetary value. Intangible assets also include the strength of company franchises as well as the value carried by its trade names which are used to place different products in the market.