03 Jul What is an asset?
Asset has many different meanings depending on the industry, but for the purposes of this article we will define an asset as a physical good or resource that provides value to an organization. This can be the computer on your desk or equipment in a manufacturing plant.
What is an asset?
The formal definition of an asset according to Wikipedia is: a resource controlled by an entity from which future economic benefits are expected to flow to the entity.
Essentially an asset must have 3 characteristics:
- Must be controlled or owned by the organization
- Must be tangible
- Will provide value in the future (if not – it’s just an expense)
From an accounting perspective there are several types of assets: Current, Long-Term Investments, Fixed, Intangible and tangible. Fixed Assets is also referred to as PPE (Property, Plant and Equipment) and includes buildings, IT equipment , land and even natural resources such as minerals.
The value of an asset is reduce overtime through depreciation, an expense based on the use and anticipated life of the asset. Because of this both assets and depreciation are important parts of the balance sheet for any organization.
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