Assets play a critical role in modern society and hold substantial value for businesses. These assets can take different forms, such as tangible and intangible. Nowadays, effectively managing and acquiring assets has become crucial to achieve financial objectives and ensure economic stability. However, it is extremely important to know the various type of assets before managing them.
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What Is Asset in Business?
Assets refer to valuable resources that can be utilized. Personal assets include cash, savings, life insurance, abilities, and skills. On the other hand, business assets include buildings, machinery, inventory, and employees. The value of assets has a positive impact on the economy by generating revenue.
Business owners, accountants, and finance teams must have an in-depth comprehension of assets, how they influence finances, and strategies for managing them effectively. Different types of assets exist, including current assets that can be converted to cash within a year and non-current assets that take a more extended period to convert into cash. Assets can be tangible like buildings and equipment, or intangible like trademarks and copyrights.
Properties of an Asset
Understanding the properties of an asset is essential for businesses. Those properties play a crucial role in determining the value and usefulness of an asset for a business. They also provide valuable insights into an asset’s potential risks.
Ownership
Ownership is a fundamental property of an asset that implies that the owner has legal rights that enable them to benefit from it, such as the right to sell, lease, mortgage, or transfer ownership to another party. In essence, ownership is the exclusive and legitimate claim to the benefits and control of an asset.
In addition, this asset property also implies that the owner bears the risks associated with the asset, such as loss, damage, or liability. Thus, understanding the ownership property of an asset is vital in determining its legal and financial implications, as well as in managing the risks and benefits associated with it. Although, managing them can be helped by an asset management system.
Economic value
This asset property refers to the worth of assets, which can be traded or sold for a price. In other words, it’s the potential economic benefit that can be obtained from owning and using the asset. It is influenced by various factors such as the asset’s expected future cash flows, the level of risk associated with the asset, the expected inflation rate, and the cost of capital.
To determine an asset’s economic value, an investor typically calculates the present value of the asset’s expected future cash flows using a discount rate that reflects the level of risk associated with the investment. The higher the present value of the cash flows, the greater the economic value property of the asset. Investors seek to identify assets with high economic value properties that can generate substantial returns over time.
Resource
Assets are resources that can potentially produce economic benefits in the future. They have the ability to provide value or generate income for their owner. The resource property of an asset is one of the key characteristics that determine its usefulness to an individual or a business.
It helps them assess whether the asset is worth investing in or whether it can contribute to the success of the business. Additionally, understanding the resource property of an asset can also help in determining the appropriate value of the asset.
Also Read: How Asset Management System Optimize Your Business Resources
Classifications of Assets
Assets can be classified into different types or categories. There are three main categories to classify assets. These classifications are useful to help you manage your assets more efficiently.
Convertibility
Convertibility means that assets are categorized based on their ability to be converted into cash and classified as either current or fixed assets. Current assets are assets that can be quickly and easily converted into cash, usually within a year. These are also called liquid assets. Examples of the current type of asset are cash, accounts receivables, inventory, and marketable securities.
On the other hand, fixed assets are assets that cannot be easily and readily converted into cash. These assets are also known as non-current assets or hard assets. Examples of fixed assets include land, buildings, machinery, equipment, patents, and trademarks.
Physical existence
This means sorting assets according to their tangible or intangible nature, whether they have a physical form or not. Tangible type of assets are those that have a physical form, such as land, buildings, machinery, and cash. Intangible type of assets, on the other hand, are assets that do not have a physical form, such as goodwill, patents, trademarks, and copyrights. Other examples of intangible assets include trade secrets, licenses and permits, and corporate intellectual property.
Usage
Classification based on usage means categorizing assets according to their intended business use or purpose. In terms of usage, assets can be classified as either operating or non-operating. Operating assets are necessary for a business’s day-to-day operations and are used to generate revenue from its primary business activities. On the other hand, non-operating assets are not necessary for daily business operations but they can still generate revenue.
Conclusion
More than knowing what an asset is, learning about the type of assets is essential for your business. You will be able to manage them properly with that knowledge. Although, you can manage your business assets more effectively and efficiently with asset management software from HashMicro. In addition, HashMicro offers you a free tour of the software along with a Productivity Solutions Grant up to 50%.
