- The Difference Between Depreciable Assets and Fixed Assets
- Total Stockholders' Equity Calculation
- Key Accounting Issues on the Fixed Asset Life Cycle
- Net Worth Calculation of Equity in Private Companies
- Rules of Debits & Credits for the Balance Sheet & Income Statement
- Fixed Asset Capitalization Policy
Anything a company owns that holds value qualifies as an asset. Assets help a company generate revenue. Accountants record every asset on a company's balance sheet, even if it was bought using credit. The company still owns the asset, and an accountant will record its full value on the asset side of the balance sheet and the corresponding payment obligation on the liability side of the balance sheet.
The International Accounting Standards Board recognizes assets as a company's present economic resources. An asset is defined by three important characteristics: it must be an economic resource, the entity must have some sort of rights or privileged access to it, and the economic resource and privileged access or rights both exist on the date of the company's financial statement publication. Company assets come in many different types, each with its own defining characteristics and accounting treatment.
Assets fall into several different classifications based on characteristics such as holding period and use. "Asset" is a somewhat broad term covering many types of tangible and intangible items. The asset group encompasses tangible items such as current assets, including cash and accounts receivable. Investments, long-term assets such as property and equipment and intangible items such as trademarks, patents or goodwill also qualify as assets. A firm will consume current assets within one year, while long-term assets have varying economic lives.
Plant assets are a subset of the entire group of assets. They fall under the classification of long-term tangible assets. Plant assets, also known as fixed assets, must meet certain characteristics to qualify as plant assets on the balance sheet. They must have a relatively long life and the company must hold them for use rather than resale. Plant assets must not become an incorporated part of a product; they must be tangible items used repeatedly to provide a service.
Assets receive different accounting treatment depending on type. The value of plant assets depreciates over time, and each plant asset has a predetermined useful life as defined by the IRS. Depreciation of a plant asset allocates its ownership cost to the accounting periods in which it generates revenue and its economic value is "used up." Accountants never depreciate land, since land is a fixed asset that does not lose its ability to generate revenue over time.