What Are Assets in Accounting?

[roseline371274]

Understanding assets in accounting can help businesses obtain both short- and long-term financial goals.
The term "asset" is often heard when the financial value of a business is being assessed. An asset can be any resource that an individual or a corporation controls and generates a positive economic benefit for its owner. Personal assets contribute to a person's wealth, while business assets are for corporations and are listed on balance sheets and used against liabilities and new zealand phone numbers equity. Here is a primer on assets, including how they work and how to determine their value.

What are assets in a business?
Assets are resources, owned by an individual or a corporation, that can be converted into cash or generate cash flow in the future. Examples of personal assets include homes, cars, art, property, and investments such as bonds, pensions and retirement plans. A person's net worth is calculated by subtracting their liabilities (everything they owe) from their assets (everything they own).

Business assets include anything the business owns that has positive economic value and could sustain production and growth. A company lists its assets on a balance sheet, which details the business's worth, how it is financed and how well it manages its resources.



Editor's note: Looking for the right accounting software for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.


 
Examples of assets
The most common assets that companies list on their balance sheets are cash, investments, accounts receivable, inventory, prepaid expenses, property, buildings, equipment, furniture, vehicles and company devices. Calculating the total value of assets can help determine a company's net worth. Businesses need to classify assets to determine the business's value and financial health.

"Having this type of real-time information at their disposal – cash, inventory, etc. – is incredibly beneficial to business owners," said Alberto Ortiz, president of ATAX. "Classifying short-term assets such as cash, accounts receivable and inventory provides a snapshot of where a business owner's resources are invested for operations."

Ideally, a company's assets should be balanced to accommodate both short-term and long-term business needs, Ortiz said.

"Think of it as a tripod: Too much allocation in one area can unbalance a business's financial position," he said. "For example, having a high accounts-receivable outstanding balance could indicate a business has less cash available to fund upcoming inventory, reducing sales or forcing a business owner to borrow for upcoming purchases inadequately. The same problem can occur in reverse, when having more inventory than necessary to keep up with demand can deplete cash balances."