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Bookkeeping Concepts

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What are assets?

Assets are sometimes defined as resources or things of value that are owned by a company. Some examples of assets which are obvious and will be reported on a company's balance sheet include: cash, accounts receivable, inventory, investments, land, buildings, and equipment. In addition, a company's balance sheet will also report prepaid expenses as an asset. For instance, if a company is required to pay its rent at the beginning of each quarter (January 1, April 1, etc.) the portion that is prepaid (not used up) as of the balance sheet date will be listed as a current asset.

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 and deferred costs, 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.