What are Assets?
Assets are resources with positive economic value that can either be sold for money if liquidated or be used to generate future monetary benefits.
Assets Definition in Accounting
The term “assets” in accounting refer to resources containing economic value or can be used to produce future benefits such as revenue for the company.
The assets section is one of the three components of the balance sheet and consists of line items representing positive economic benefits.
That accounting equation, also called the balance sheet equation, states that the assets will always be equal to the sum of the liabilities and equity.
The formula for calculating assets is as follows.
Conceptually, the formula indicates that a company’s purchase of assets is financed with either:
- Liabilities — e.g. Accounts Payable, Accrued Expenses, Short-Term and Long-Term Debt
- Shareholders’ Equity — e.g. Common Stock and APIC, Retained Earnings, Treasury Stock
Therefore, the assets side of the balance sheet represents the resources utilized by a company to generate revenue growth, whereas the liabilities and shareholders’ equity section are the funding sources — i.e. how the asset purchases were financed.
The assets section comprises items that are considered cash outflows (“uses”), and the liabilities section is deemed cash inflows (“sources”).
Other assets are future cash inflows such as accounts receivable (A/R), which are the uncollected payments owed to the company from customers who paid on credit.
In the final type, there are long-term investments that can be used to derive monetary benefits, most notably property, plant and equipment (PP&E).