ASSETS AND LIABILITIES: What is an Asset?

Over the next few days, I am going to be writing on a new Financial Intelligence series – Assets and Liabilities

You cannot venture into an investment without adequate knowledge of these terms.

I don’t really intend to go into all the technical aspects of this topic, rather, I will give you all the basic information you need to increase your financial literacy on this topic.

What Do You Understand by Assets?

Asset refers to anything of economic value (skill, property, shared, etc.) owned by a Corporation or an individual that can easily be converted into cash and used to pay debts, meet obligations or generate income.

An asset is any form in which wealth can be stored and held – a long lasting item of property that can be reasonably expected to contribute to the future profits of a business.

Robert Kiyosaki has an even simpler definition for asset especially when it has to do with your personal finance.

He defines Asset as anything that puts money in your pocket and Liability as anything that takes money out of your pocket.

In other words, if it is costing you money, then it is not an asset.

Furthermore, an asset can either be liquid or illiquid.

The liquidity of an asset is the ease to which it can be converted to cash.

According to Wikipedia, assets can be classified into two major asset classes: tangible assets and intangible assets.

Tangible assets

These contain various subclasses, including current assets and fixed assets. Current assets include inventory, while fixed assets include such items as buildings and equipment.

Intangible assets

These are nonphysical resources and rights that have a value to the firm because they give the firm some kind of advantage in the marketplaces.

Examples of intangible assets include goodwill, copyrights, trademarks, patents and computer programs, and financial assets, including such items as accounts receivable, bonds and stocks.

Assets are classified differently, depending on how you look at them, or who is looking at them.

It is classified differently from the Accounting and Investment perspectives.

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In the next series, we are going to consider the types of Assets and how to better understand them when it has to do with your personal finance and business finance respectively.

Got any questions? The comments section is all yours.

SEE ALSO: ASSETS AND LIABILITIES: Classes of Assets

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