In accounting, assets are important parts of the balance sheet. The purpose of this article is to define an asset and present the main components of the balance sheet.
1. Definition of assets in the balance sheet
An asset is an identifiable element of the entity’s resources having a positive economic value of the latter, that is to say an element generating a resource that the entity controls because of past events and from which it expects future economic benefits.
In a balance sheet, the asset is located in the left part of the table. It breaks down into three categories: fixed assets (split between tangible assets, intangible assets and financial assets), current assets and accruals. We will detail each of its parts.
2. Fixed assets
This heading covers all goods intended to be used in a sustainable way for the company’s business. In accounting language, they are “fixed assets”. There are three types:
Intangible assets: are non-monetary assets with no physical substance. These include, for example, patents, software, goodwill, set-up costs, lease rights, research and development costs;
Property, plant and equipment: these are physical assets held for use in the production, supply of goods and services or for leasing to third parties. These may include industrial equipment, transport equipment, furniture, computer equipment, land, or a building;
Financial fixed assets: these are equity securities (allowing to influence or control a company), loans granted, payment of security deposits.
Intangible and tangible fixed assets lose value as they are used by the entity. This is why the latter must recognize an accounting depreciation each year that is supposed to reflect the “consumption of the future economic benefits” of the property.
Financial fixed assets (equity securities, advances and loans granted) can not be amortized but may be subject to provisions, subject to certain conditions.
In the balance sheet, three columns must be distinguished: the gross amount of fixed assets, the amount of accumulated depreciation / impairment and the net amount of fixed assets.
3. Current assets
Certain assets are not intended to be used on a sustainable basis (such as inventories). They make up the balance sheet assets. The current assets of the balance sheet consist of five headings:
Inventories and work-in-progress: these are all goods and services involved in the business cycle of the business to be sold or consumed in the production process;
Advances and payments on orders: when a company places an order with its suppliers, the latter can ask for an advance or an advance payment as an advance;
Receivables: These are receivables that the entity holds towards third parties (for example, customers, the public treasury, social agencies);
Marketable securities: commonly referred to as securities acquired with a view to realizing a short-term gain (purchase for resale). They will not be permanently retained by the entity;
Cash and Cash equivalents: this category includes all the sums in cash and positive balances of the bank accounts;
Prepaid expenses: this item is used to offset the impact of expenses that have been recognized for a period but which relate to a later period.
4. Accrued income and expenses
This “accruals” category includes expenses to be spread over several financial years and translation-to-asset differences (when the company trades with other entities in foreign currencies, it must make accounting records particular at the close of its accounting period, except in special cases).