Asset

An asset is a resource that a person, business or government owns or controls and that is expected to produce economic benefit in the future. Cash in a bank, a delivery van, a factory, a portfolio of bonds, money owed by customers and a registered trademark are all assets. Households hold assets to store wealth and earn income; firms use them to produce goods and services; governments hold them to run public services and to back their currencies.

In accounting, assets sit on one side of the balance sheet, matched by the liabilities owed to others and the owners' equity. Under the International Accounting Standards Board's Conceptual Framework (revised in 2018), an asset is a present economic resource controlled by the entity as a result of past events, and an economic resource is a right that has the potential to produce economic benefits. Economists use the word more broadly for anything that holds value over time, as opposed to income, which is a flow received during a period.

Think of everything in a small bakery that helps it make money or could be sold for money: the oven, the flour in the storeroom, the cash in the till, the money a café down the road still owes for last week's bread, and even the bakery's well-known name. Each of those is an asset. Some can be touched, some cannot, and some can be turned into cash far more quickly than others.

What makes something an asset is not that it cost money, but that it should bring something back. A broken oven that will never work again is no longer much of an asset, even if it was expensive when bought.

Accountants and analysts sort assets in several overlapping ways, each answering a different question:

• By time horizon. Current assets are expected to be used up or turned into cash within a year (cash, receivables, inventory); non-current assets serve the business for longer (buildings, machinery, long-term investments).
• By physical form. A tangible asset has physical substance, such as land or equipment, while an intangible asset does not, such as software, customer lists or intellectual property.
• By ease of sale. Cash and listed shares are highly liquid, whereas an illiquid asset such as a private company stake or a specialist building may take months to sell without a large discount.
• By nature of the claim. Financial assets are claims on someone else, such as a loan, a deposit or a stock; real assets are things used directly in production or consumption.

Investors also group financial assets into an asset class (equities, fixed income, cash, property, commodities) when deciding on asset allocation.

An asset's figure in the accounts depends on the measurement basis the accounting rules allow. Many non-current assets are carried at historical cost less accumulated depreciation or amortization, so their recorded value falls each year as they are used. Other items, especially traded securities, are measured at fair value, which is close to marking to market. If an asset's recoverable amount falls below its carrying amount, accounting standards require an impairment write-down.

The result is that the total of assets on a company's balance sheet, and the book value left after deducting liabilities, can differ sharply from what the market would pay for the whole business. That gap is one reason investors also look at the price-to-book ratio and at valuation methods based on future cash flows.

In economics, assets are stocks of wealth. A household's net worth is its assets minus its debts, and changes in asset prices can affect spending through the wealth effect. Productive assets such as machinery and buildings are capital goods, and national accounts record new purchases of them as gross fixed capital formation. Skills and knowledge embodied in people are sometimes described as human capital, although they cannot be owned or sold like other assets.

A bank's assets are mostly loans and securities, funded largely by customer deposits, which are the bank's liabilities. Banking regulation under Basel III links the capital a bank must hold to the riskiness of its assets, so a residential mortgage and an unsecured business loan carry different capital charges. Central banks also hold assets: during quantitative easing they buy government bonds and other securities, expanding the asset side of their balance sheets, and during quantitative tightening they let those holdings shrink. A country's foreign exchange holdings, gold and other claims usable in a crisis are its reserve assets.

The range of things treated as assets keeps widening. Data, algorithms and brands now make up a large share of the value of many listed companies, even though accounting rules often keep internally created intangibles off the balance sheet. Digital assets such as cryptocurrencies and tokens raised new questions about control and custody, and tokenized real-world assets attempt to represent bonds, funds or property on a blockchain. Regulators and standard-setters have responded with specific rules on how such holdings are classified, measured and disclosed.

• IFRS Foundation: Conceptual Framework for Financial Reporting
• IFRS Foundation: IAS 16 Property, Plant and Equipment