A company may state that its employees are its most valuable asset. However, the employees cannot be included as an asset on the company's balance sheet. Similarly, a company may have successfully promoted its products, services and brands throughout the world and the brands are now the company's most valuable assets. Yet these brands and trademarks cannot be reported as assets on the company's balance sheet. (If a company purchases a brand from another company, the cost can be listed as an asset on its balance sheet.)
As our examples indicate, the accountant's definition of an asset has to be somewhat complicated in order to:
- include prepaid expenses, deferred costs, and certain deferred income taxes, and
- exclude a company's talented team, the patents and trademarks that were developed internally, and its image and reputation for excellence at a fair price.