Wikipedia of Finance - e-learning course on Accounting Wikipedia Chapter - Assets and Current Assets

What is Assets and Current Assets? Definition with Accounting Examples


Assets Definition:

In accounting terms, any tangible (physical resources) or intangible (nonphysical resources) that can be possessed or controlled to create positive monetary value is known as Assets.  In other words, “anything that can be transformed into cash value is termed as assets”.  This includes:

  • Real Estate Asset like Building, land and any other physical immovable structure.
  • Personal Asset like substance that you claim which is not a genuine property, for example, furnishings, collectibles, vehicles, jewelleries, etc.
  • Cash Value Asset like physical cash, savings account, Treasury bills, Certificate of deposit (COD), etc.

On accounting balance sheet of individual or firm records, Assets are broadly divided into tangible asset (also known as physical asset) and intangible asset (also known as nonphysical asset). Tangible assets are further classified into fixed assets and current assets. Examples of tangible asset include: Inventory, land, machinery, buildings, equipments, etc. Intangible assets are nonexistence asset but still possess cash value. They are valuable to the individual, business or organisation. Examples of intangible asset include: patents, reputation of excellence, copyrights, goodwill, trademarks, etc.

Current Assets Definition:

In accounting terms, any asset expected to the sold for cash or cash equivalent value within a period of one year or within accounting cycle is known as “Current Asset”. Examples of current asset include:  Cash, debt claims, stock, account receivable, inventory, prepaid expenses, short-term investments and other liquid asset that can be converted to cash. Current assets are essential to individuals or organizations on the grounds that they can be utilized fund for paying day-to-day expenses and operations costs.  Asset that can’t be transformed into cash value within a year are excluded in this classification and are rather considered as “long-term assets”.

Payment withhold by clients which will be settled in specified duration are categorized into Account receivables. Mostly Account receivables are classified into current asset. This is because they are expected to be paid within a year.  On the other note, if account is never settled then it is composed down as bad debts. Inventories may not be as liquid as other asset like account receivables. But Inventory is also incorporated under current assets. Prepaid expenses are also categorized into current asset not on the grounds that they are liquid assets and can be converted to cash. But rather in light of the fact that they are agreement for cash for other necessities of business or organisations. Examples of prepaid expenses include: payment to contractors, insurance payments, etc.

Components of current asset are utilized to compute various ratios which are important for business operations. Current ratio is one of the most useful ratios for conducting operations.  Formula to get current ratio is to divide current assets by current liabilities. In the end, Current asset are any asset which can be effortlessly converted into cash. Current asset can be utilized to pay liabilities and outstanding debts without selling the fixed asset.

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