Asset AccountsDefined with Examples & More

Written By:
Lisa Borga

Assets are the resources owned or controlled by individual companies or governments with an expectation that they will provide positive future economic benefits.

What this generally means for accounting is that an asset is an item a company will use in order to create revenue or sustain operations.

Assets are listed in asset accounts which typically hold a debit balance and show the value of what the company owns.

In order to help a company and investors to sort and determine what resources a company has at its disposal, these assets are categorized into a number of different asset accounts.

Different Categories of Asset Accounts

Accounting systems divide assets into different categories, which are then placed in distinct accounts.

Assets are classified by their liquidity or how easily they can be converted into cash.

These are organized into two categories current assets, which are assets that are expected to have a useful life of at most one year, and noncurrent assets which are expected to have a useful life of more than one year.

Examples of Current Asset Accounts

A company’s chart of accounts may have many different categories of current asset accounts depending on their industry, but some of the most common examples are:

• Cash: This account represents the most liquid of all assets, cash. This will include all currency that may easily be used to make purchases, including checking accounts, undeposited checks, and others.
• Accounts Receivable: Many businesses will sell goods or services on credit which is a promise on the part of the customer to pay the full selling price at some point in the future. This promise to pay becomes an asset, and the selling price is recorded in accounts receivable.
• Notes Receivable: This is another type of promise to repay a certain sum of money. This is a written agreement between the business and a second party that the latter will pay a given sum by some future date. In some circumstances, this may be a non-current asset depending upon the terms of the agreement.
• Prepaid Expenses: These are expenses that a business has already paid for, which will offer future benefits. Because the company has a claim to receive these benefits in the future, they are an asset. A common example of this is insurance which may be paid in advance for a full year. As the benefits are recognized, for example, monthly, the business will expense the account, reducing the value of the asset until it is used up.
• Inventory: This is an account that records the value of goods a company holds for sale. For example, a computer retailer may have 20 desktops and 40 laptops for sale at any given time, and the value of these would make up the inventory account. The cash register, however, is not for sale and would not be recorded in the inventory account.
• Supplies: This account records the value of incidental items which are expected to be used within a year. These are generally for individually insignificant expenses, which are expensed immediately upon purchase. Common examples would be items such as paper clips, tape, or pens, among countless others.

Examples of Non-Current Asset Accounts

Assets that will not be consumed within a year are divided into non-current asset accounts.

Though a business could have many different categories of non-current asset accounts on its chart of accounts depending upon its industry, some common categories of accounts are:

• Fixed Assets: This includes assets that are expected to have a useful life extending between multiple accounting periods. These are generally segregated into several different types of accounts depending upon the characteristics of the asset. Some common examples of fixed asset accounts include buildings, equipment, vehicles, land, machinery, computer equipment, and furniture.
• Intangible Assets: Some assets a company owns may not be physical. Some assets are non-tangible such as patents, copyrights, goodwill, and many others. Despite not being able to touch or hold these assets, they can be quite valuable.

The Defining Properties of an Asset

In order to classify something as an asset, it is important to understand what an asset is.

There are some key properties something must have in order to be considered an asset.

• Ownership: A company must have a right to something such as ownership or control in order for it to be considered an asset. This allows the company to gain economic value from the asset and restrict the use of it by others. For example, a company could own a building outright, and the building would be recorded as an asset. The company could also lease it, in which case the lease agreement would be considered an asset.
• Positive Economic Value: Something must also offer positive economic value. In many cases, this may be by an asset’s ability to be sold or otherwise converted into cash. However, an asset can also be something that reduces expenses or supports production, such as a patent.

Importance of Classifying Assets

Properly classifying assets is important for businesses that need to have a clear idea of their current financial standing.

Properly classifying assets as current and non-current provides an indication of a company’s working capital.

A clear picture of assets can also help a company to qualify for loans by giving a clear picture of a company’s book value and what it has to offer as collateral versus its current liabilities.