Definition of Assets

Assets are economic resources owned by a company that contain future economic benefits that can be reliably measured. Assets are characterized by being the result of past events or transactions, under the company's control, and expected to generate cash flows or economic benefits in the future. Assets include all material and intangible properties owned by the company, whether monetary or in-kind, and are considered the source of the company's financial strength and the basis of its ability to conduct business activities and achieve profits.

Types of Assets

Assets are divided into two main types according to their convertibility to cash:

Current Assets

These are assets that can be converted to cash within one year or the normal operating cycle, whichever is longer. They include:

• Cash and bank balances
• Accounts receivable and customers
• Merchandise inventory
• Short-term investments

Non-Current Assets (Fixed)

These are assets used for long periods in operating activities and convert to cash after more than one year. They comprise:

• Fixed assets (buildings, equipment, land)
• Long-term investments
• Intangible assets (goodwill, patents)
• Deferred expenses

This classification is necessary for evaluating financial liquidity and the company's ability to meet its cash needs.

Characteristics of Assets

Assets are considered the basic element in building the company's financial wealth. To understand their nature and how to manage them accounting-wise, it is important to know their basic characteristics:

• Economic Benefit - Capable of generating future cash flows or economic benefits
• Control and Ownership - Subject to the company's control and right to use them
• Measurability - Having a specific monetary value or reliably estimable
• Past Result - Resulting from past events or transactions, not future ones
• Convertibility - Can be converted to cash or used in operations
• Continuity - Retain their value for varying time periods
• Form Diversity - Take multiple physical and intangible forms

These characteristics determine how to classify, evaluate, and treat assets in the accounting system.

Where Assets Appear

Assets appear on the left side or upper half of the statement of financial position (balance sheet), arranged according to liquidity degree from most liquid to least liquid.

Asset movements also appear in the cash flow statement when purchased or sold, and in the income statement through depreciation expense for fixed assets, in addition to notes to financial statements that provide details about the nature of assets, their valuation methods, and depreciation policies followed.

Importance of Assets in the Basic Accounting Equation

Assets are considered the first element in the basic accounting equation that forms the theoretical foundation of accounting:

Assets = Liabilities + Owners' Equity

This equation shows that the company's total assets must equal the sum of its obligations and shareholders' rights, achieving basic accounting balance and reflecting the sources of financing for these assets.