Within a balance sheet, there is a category that lists the value of assets in the organization. An asset is a resource of a company that it exclusively owns. It is a resource that is “scarce.” Also, it is able to produce economic benefit by generating cash inflows or decreasing cash outflows. Simply stated, selling it will bring cash into the organization.
Generally speaking, an asset is an item of value. It qualifies because the open market sees a value for it. Office furniture holds potential cash value. Ownership in another business, such as stocks, holds potential cash value. Even a website domain name, such as www.cars.com, holds potential cash value.
Assets fall into categories: short-term (or current), fixed, financial investments and intangible.
Current assets are “short-term economic resources” categorized to be converted within a year of the reported value. These include cash and cash equivalents, accounts receivable, inventory, and various prepaid expenses.
Fixed assets are long-term resources, such as plants, equipment and buildings. These items are subject to a condition called depreciation. Depreciation is an accounting procedure created from “periodic charges.” In simple terms, depreciation is the system that adjusts the value of high-value items as they get older. For example, cars, furniture, computers, and other “big-ticket” items are good examples of depreciating items. The reason these items experience depreciation is because they are worth less in the open market over time.
Financial assets are investments in the assets and securities of other companies. They include stocks, sovereign and corporate bonds, preferred equity, and other hybrid securities.
Intangible assets are economic resources that have no physical presence. They include patents, trademarks, copyrights and “goodwill”, or “blue sky.” They can also include brand names and website domain names.
There are approved systems to determine the fair market value of assets. Please do not fall into the trap of guessing on a value without clearly defined proof in place.
If you have any questions, please contact your accountant or attorney.