An asset is anything that is likely to provide future economic benefit. Every business must take steps to protect, control and manage the assets it owns. Cash must be managed effectively to protect it and use it effectively. In this section, we will start by understanding what assets are, what are the different asset classifications, and then we will focus on asset management.
There are two major asset classes; tangible assets; and intangible assets. Property, plant and equipment are classified as follows; current assets or fixed assets. Current assets include inventories and receivables, while the term “fixed assets” generally refers to long-lived tangible assets used in businesses, including buildings, real estate equipment, land, machinery and equipment.
What are the assets:
According to Financial Accounting Standards Boardassets are “probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events”.
According “The Institute of Management Accountants“assets are “any physical (material) object or (intangible) right owned that has economic value to its owners; an item or source of wealth with continuing benefits for future periods, expressed, for accounting purposes, in terms of cost or some other value, such as current replacement cost. Future periods refer to the following year or years.
An asset is anything that is likely to bring future economic benefits. Each employee is responsible for following policies and procedures to protect company assets.
Classification of assets:
Assets are classified into two categories: tangible and intangible.
1. Tangible fixed assets:
Tangible assets are assets that one can touch, hold or smell. Generally referred to as fixed assets in the accounting literature, property, plant and equipment are the physical items that a business uses in the production of goods and services. They constitute production facilities, buildings, equipment and vehicles. These operating assets of a business include furniture, computers and similar items not used during the year.
2. Intangible assets:
These are mainly financing items: stocks, bonds, mortgages, etc.
Current assets:
Assets that are converted into cash during the normal production cycle are current. Current physical assets are called financial assets. These are physical assets such as raw materials, work-in-progress inventory, finished goods and goods for resale.
Definition of fixed assets:
An asset is anything that is likely to bring future economic benefits. Fixed assets are assets held for the purpose of supplying or producing goods or services and are not intended to be sold in the ordinary course of business. Therefore, an asset may be classified as a capital asset or otherwise, depending on the use to which it is intended or intended to be put.
The term “fixed assets” generally refers to long-lived tangible assets used in businesses, including buildings, property, equipment, land, machinery and equipment. Fixed assets in accounting describe something tangible that the business owns and will own for years to come. By their very nature, fixed assets renew themselves much more slowly than current assets. Normally, fixed assets are carried over from year to year. The average unit of relatively fixed assets normally has a higher monetary value. Due to the high value of the dollar, their acquisition is more effectively controlled and is of particular importance when fixed assets are self-built.
Some examples of property, plant and equipment are property, plant and equipment (PP&E), construction in progress (CIP), vehicles, tooling, capitalized interest, equipment leased to others (ELTO), and capitalized software, etc. .
Physical items may be financial assets, held in inventory, in one business, whereas in other businesses or applications they may be fixed assets. An example of such a financial asset would be real estate held in inventory by a real estate investment and sales company or a builder, which would be a fixed asset for everyone else. Equipment manufacturers have financial assets in finished goods or inventory held for sale, as well as plant and equipment that will be sold to other businesses. Inventory is a financial asset; When sold for use in a production line, it becomes a fixed asset for the buyer.