Asset
An asset is any resource owned or controlled by an individual, corporation, or country with the expectation that it will produce positive economic value. Assets can be tangible or intangible, and they are typically recorded on the balance sheet of a business for accounting purposes.
Types of Assets
- Current Assets: These are short-term economic resources that are expected to be converted into cash within one year or one operating cycle. Examples include:
- Fixed Assets: Also known as non-current or long-term assets, these are expected to provide an economic benefit over multiple accounting periods. They include:
- Intangible Assets: These assets lack physical substance but still provide economic benefits. Examples are:
- Financial Assets: These include investments in securities such as:
History and Context
The concept of assets dates back to the earliest forms of trade and commerce. However, formal accounting for assets began with the development of Double-Entry Bookkeeping in the 15th century by Luca Pacioli, who published one of the first written descriptions of the practice in his book "Summa de Arithmetica, Geometria, Proportioni et Proportionalità " in 1494.
In modern finance, the categorization and valuation of assets have evolved significantly, influenced by:
These bodies set standards for how assets are recognized, measured, presented, and disclosed in financial statements.
Asset Valuation
The valuation of assets can be done through several methods:
- Historical Cost - The original monetary value of an asset.
- Fair Value - The price that would be received to sell an asset in an orderly transaction between market participants at the measurement date.
- Net Realizable Value - The estimated selling price in the ordinary course of business minus reasonably predictable costs of completion and disposal.
- Amortized Cost - For financial assets, this is the initial recognition amount adjusted for amortization of discount or premium, transaction costs, and impairment losses.
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