What are assets? And what are their types?

What are assets And what are their types

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In the complex and accelerating world of business, accounting is one of the essential elements that ensure the stability and success of organizations. It is the common language that translates the details of financial and economic operations into the highest forms of transparency and financial reporting. At the heart of accounting lies the concept of assets, which is the backbone of an effective accounting system. Assets are defined as the financial and material resources that an organization possesses that contribute to achieving its goals. By understanding them and managing them properly, businesses can build strong foundations that help them compete in the business market and include a variety of elements, from cash and amounts available in bank accounts to real estate, buildings, equipment, and vehicles to financial rights and investments.

What is the concept of assets? 

The concept of assets can be defined as items of value owned by a company or individuals, and it also means the rights and property of a company. Assets include economic resources, tangible and intangible items that the company owns, which can be converted into cash to pay off debts or cover business and economic expenses.

Assets are also a group of future benefits that the company can obtain as a result of financial events and changes, and their value is recorded in the financial statements. This is an important condition that reflects the transparency and credibility of these lists. When the financial statements are transparent and reliable, this reflects the strong financial position of the company.

Types of assets

Recording and analyzing assets in the corporate balance sheet is vital to understanding and evaluating the financial position and economic performance of the company, as the concept of assets is an essential component of the budget structure and represents the resources that the company owns and uses to achieve its business objectives. The types of assets include the following:

Current Assets

It is what is expected to be converted into cash within a financial or operating cycle. It is an important part of the balance sheet, as it represents the liquidity available to the company and its ability to meet its short-term financial obligations. The value of these assets is usually higher than that of fixed assets due to the ease of converting them into cash. .

Examples of current assets

  • Cash balances in banks and funds.
  • Customers.
  • Stocks.
  • Bonds. 
  • Bank certificates.
  • Notes receivable or accounts receivable.
  • It also includes inventory, such as raw materials and products.
  • Prepaid expenses, such as taxes paid, insurance, revenues, and amounts payable.

Fixed assets or non-current assets

These assets are physical property that cannot be easily converted into cash because they are used in the day-to-day operations of the business, are essential to running the business and generating income, are an essential component of the production process, are used for long periods of more than at least one year, and over time, their value can decline due to consumption and obsolescence.

Examples of fixed assets

  • hardware.
  • Furniture.  
  • Lands and buildings.

These assets represent a capital investment for the company and contribute to achieving its long-term goals.

Tangible assets

The concept of tangible assets can be classified into several categories, such as:

  • Fixed assets: such as real estate and equipment.
  • Other traded items: such as inventory and cash.

Tangible assets can be subject to depreciation over time, and companies must monitor and maintain them regularly. Changes in the market value of tangible assets can affect the company’s ability to obtain additional financing, such as bank loans.

 Examples of tangible assets

  • Lands.
  • the cars.
  • Real estate.
  • hardware.
  • Inventory.
  • Securities and cash.

Intangible assets

The concept of intangible assets is an important part of the value of companies and institutions, as it reflects the unique capabilities and knowledge that they possess and can protect the company from competition and give it a competitive advantage. Companies must protect their rights in these areas, such as registering trademarks and protecting software rights.

 Examples of intangible assets 

  • Patents.
  • Trademarks.
  • Copyrights. 

Investment and commercial assets

They are intended to increase a company’s ability to generate profits and returns and can be vulnerable to market fluctuations and value changes; therefore, companies must manage them carefully.

Examples of investment and trading assets 

  • Investments in other companies.
  • Stocks and securities.
  • Real estate and land.
  • investment funds.
  • Wind, solar, and also oil.

Personal assets

The concept of personal assets refers to property that is convertible into cash and is owned by individuals. It can be used to generate profits, increase personal income, finance personal projects, or meet financial needs. It is worth noting that it is important for individuals to carefully manage their personal assets and make the right financial decisions to preserve their values.

Examples of personal assets

  • the cars.
  • Financial cash.
  • Bank accounts.
  • Current accounts.

Operating assets

Operating assets are essential to facilitating and managing a company’s day-to-day operational activities and include a variety of items that help a company generate additional profits and revenues.

Examples of operating assets

  • Equipment includes physical equipment, such as machines and tools that are used in the company’s daily production operations or services.
  • Technical equipment includes hardware, software, and technical systems that the company uses in its operational operations.
  • Cash flow and liquidity include cash, bonuses, and amounts receivable, which can be used to finance the day-to-day operational activities of the company.
  • Distribution and publishing rights include the financial value resulting from the company’s intellectual property rights, such as copyrights, trademarks, and patents.

Non-operating assets

The concept of non-operating assets represents items that are not essential to the company’s daily operations and operational activities, and although they are not essential to the operational business, they still play a role in managing the company and achieving its strategic objectives.

Examples of non-operating assets

  • Deposits include funds stored in bank accounts or cash deposits held by the company in banks.
  • Investments include financial assets such as stocks, bonds, mutual funds, real estate, and other fixed assets that are not used in daily operations.

How to calculate current assets

Current assets are calculated following several main steps, which include the following:

Cash account

Liquid cash is collected and includes cash in the tank and the company’s current accounts. Petty cash expenses that have been paid in advance but have not yet been used must also be counted.

Example

If the organization has 100,000 riyals in cash, 200,000 riyals in current accounts, and 80,000 riyals in petty cash, the total cash in current assets will be 380 thousand riyals.

Total short-term investments

All investments that can be converted into cash in a short period of time should be collected, such as:

  • Stocks.
  • Bonds.  
  • Certificates of deposit.

Example

If the institution owns 60 thousand riyals of shares and 40 thousand riyals of certificates of deposit, the total short-term investments will be 100 thousand riyals.

Current accounts receivable

All receivables and amounts owed to the company from customers must be collected, whether they have already been collected or not yet.

Inventory account

The value of inventory at the end of the period is calculated by the following equation:

Value of inventory at the beginning of the period + net purchases = cost of goods sold.

Example

If the value of the inventory at the beginning of the period is 200 thousand riyals, the net purchases for the period are 300 thousand riyals, and the cost of goods sold in the period is 150 thousand riyals, then the value of the inventory at the end of the period will be 350 thousand riyals.

Other assets

Any other current assets of the company, such as other financial assets and financial receivables, must also be accounted for.

Notice

To calculate total current assets, you add all the previous elements together, which can be represented by the following equation:

Total Current Assets = Cash + Total Short-Term Investments + Current Accounts Receivable + Inventory + Other Assets + Prepaid Expenses.

A model of current assets 

If you are looking for a model for trading assets, just click here.

What is the difference between current assets and fixed assets?

The difference between the concepts of current assets and fixed assets is an important topic in accounting and may cause confusion for some. So here is the difference between them, as follows:

current assets

They are assets that can be exchanged for cash within a period not exceeding one year. These assets are used to pay the company’s current or immediate obligations, and they include many elements, such as:

  • Cash.
  • Accounts receivable.
  • Stocks.
  • Short term investments..

Current assets are valued based on current market prices, and inventory may occasionally be revalued, but in general, the concept of current assets is not subject to revaluation.

Fixed assets

They are assets that cannot be exchanged for cash within one year and are used to meet the company’s long-term or future needs. They include fixed assets, such as:

  • Long term investments.
  • Properties.
  • Devices.
  • hardware.
  • the fame.
  • Long-term deferred tax asset.

Fixed assets are valued based on their original cost after subtracting depreciation from a tax perspective. When the market value of a tangible asset falls below its book value, the property, appliances, and equipment are re-evaluated.

How are assets recorded and added in the Qoyod accounting program?

How to add assets in the Qoyod program is an important process in accounting that aims to record fixed assets in the company’s records. Here is the way to do that:

  • Accessing the accounting menu: Access the accounting menu in the Qoyod program by clicking on the drop-down menu related to accounting.
  • Click on manual accounting entries: Click on the “Manual accounting entries” option or any similar option that allows adding a new manual entry.
  • Create a manual entry. You will see a page containing all the accounting entries that were added by the user to the program.
  • At the top left of the page, you will find the “Create Manual Entry” icon, which you must click to add a new entry.
  • Select Asset Account: To add a fixed asset, you must select the asset account associated with it.
  • There may be pre-defined accounts in the software for fixed assets, such as cash, banks, debtors, inventory, land, buildings, equipment, machinery, furniture, and computer equipment.
  • If you want to add a new account, you must go to the “Create a new account” option and follow the required steps.
  • Entering entry data: You will see dedicated fields for entering new entry data. You can write a brief description of the entry and specify the date associated with it.
  • Add a comment. You can leave any additional comments about the entry in the boxes on the far left of the page.
  • Save entry: After entering all entry data correctly, you must click the “Save” button to confirm adding the account.

Notice

It is important to ensure that the entries in the manual entries are correct because they affect the company’s financial statements, and in the event that the concept of fixed assets is sold, they will be transferred to the income statement, and this will be reflected in the financial statements.

Accountants and users must pay attention to details and ensure that the correct information is entered in manual entries. This ensures the accuracy and reliability of accounting data and contributes to making the correct financial decisions.

Conclusion

The concept of assets in accounting is one of the main elements that contribute to understanding and analyzing the financial position of any economic entity. It represents the basic basis on which accounting work is built, as it reflects the value of the financial and material resources that the company possesses and uses to achieve its goals and includes cash assets, investments, lands, buildings, equipment, inventory, receivable claims, and many other elements that the company owns. Asset management requires accountants and financial managers to carefully and continuously monitor assets, including recording, evaluating, storing, and disposing of them when needed.

 

You must put assets at the forefront of accounting thinking and give them the necessary attention in all aspects of financial work through the use of the Qoyod program. It is worth noting that the program also offers all its clients: electronic invoice systems, as well as point-of-sale systems, warehouses, customers, etc., all of that. At the best prices.

Dear reader, after knowing what the concept of assets is and its types, try Qoyod now for free for 14 days, and you will not believe what will happen next.

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