Definition: An asset is an item of economic value that is expected to yield a benefit to the owning entity in future periods. If an expenditure is instead consumed within the current period, it is classified as an expense.
A business with a large number of assets can be viewed as being more valuable than one with fewer assets; however, these assets are acquired with capital, which is expensive. Consequently, if the return generated by the assets is less than the return expected by investors, the assets are actually destroying value for the investors.
If an asset was purchased by an entity, it is recorded on the balance sheet. However, some assets are acquired at such a low cost that it is more efficient from an accounting perspective to charge them to expense at once; otherwise, the accounting staff must track these assets through multiple periods, and determine when they have been consumed and should therefore be charged to expense.
When assets are recorded on the balance sheet of a business, they are classified as being either short-term or long-term assets. A short-term asset is expected to be consumed within one year, while long-term assets are to be consumed in more than one year. Examples of short-term assets are:
- Marketable securities
- Accounts receivable
- Prepaid assets
Examples of long-term assets are:
- Office equipment
- Furniture and fixtures
Some intangible assets are not recorded on the balance sheet, unless they have been purchased or acquired. For example, a taxi license can be recognized as an intangible asset, because it was purchased. Also, the value of a customer list that is part of an acquired business can be recorded as an asset. However, the value of an internally-generated customer list cannot be recorded as an asset.