What Are Assets? - Definition & Examples

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  • 0:00 What Are Assets?
  • 0:45 Asset Categories
  • 2:25 How Are Assets Reported?
  • 3:32 Lesson Summary
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Lesson Transcript
Instructor: Rebekiah Hill

Rebekiah has taught college accounting and has a master's in both management and business.

In this lesson, you will learn about assets, the first variable of the basic accounting equation. We will discuss the definition, categories, and classifications of assets.

What Are Assets?

What exactly are assets? In the accounting world, assets are items that have monetary value and are owned by a business. Assets are either tangible or intangible. Tangible assets are those assets that have a physical form. They can be seen and touched. A building is a tangible asset.

Intangible assets are just the opposite and are a concept rather than a concrete object. Intangible assets have no physical form. Examples of intangible assets are such things as the right to a domain name or a trade name. Even the knowledge and skills of employees can be considered intangible assets.

Asset Categories

Though there are just two types of assets, there are several different categories of assets. Some of the most common categories of assets are:

Cash - The asset cash consists of paper money, coins, checks, and money orders that are made payable to the business.

Accounts receivable - This type of asset is one that involves the selling of a good or service on credit to a customer. Even though there is no immediate transfer of cash from seller to customer, there is a monetary amount due in the future.

Inventory - Included in this asset category are such things as raw material that is used in production and finished goods not yet sold.

Supplies - Pens, paper, stamps, printer toner, boxes, labels, and tape are a few prime examples of this type of asset. Supplies are usually used up within a year.

Prepaid expenses - These are the expenses that are paid in advance and expensed out over the course of one year or less. For example, XYZ Company pays property insurance on an annual basis in January of each year. The total amount paid is $3,600. The amount that is charged to insurance expense, a liability account, is $300 (3,600 / 12 = 300) each month. The asset account (prepaid insurance) balance will decrease throughout the year until it reaches $0.

Plant, property, and equipment - This classification of assets includes such things as buildings, land owned by an organization, and machinery used for the daily operations of the organization.

How Are Assets Reported?

Assets are reported on the balance sheet and are grouped into two classifications - current assets and noncurrent assets.

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