What Are Assets?
(5 of 10)
What Are Assets?
Assets are economic resources that are expected to produce economic benefits for their owners. Assets can take many forms. They are the buildings and machinery used to manufacture products. They can be patents or copyrights that provide financial advantages for their holders. Let us begin with a look at a few of the important types of assets that exist.
Things To Know
- Assets take many different forms.
Types of current assets
Current assets are assets that are usually converted to cash within one year. Bondholders and other creditors closely monitor a firm’s current assets, since interest payments are generally made from current assets. Current assets include several forms:
- Cash. Cash is known and loved by all. It is the most basic current asset. In addition to currency, checks, drafts, and bank accounts without restrictions are also considered cash due to the ease with which one can turn these instruments into currency.
- Cash equivalents. These are not cash but can be converted into cash so easily that they are considered equal to cash. Cash equivalents are generally highly liquid, short-term investments such as US Treasury bills and money market funds.
- Accounts receivable. Accounts receivable represent money customers owe to a firm. As more and more business today is being done with credit instead of cash, this item is a significant component of the balance sheet.
- Inventory. A firm’s inventory is the stock of materials used to manufacture its products, and it is also the products themselves before they are sold. A manufacturing entity will often have three different types of inventory: raw materials, works-in-process, and finished goods. A retail firm’s inventory generally will consist only of purchased products that have not been sold yet.