What is an asset?

Resource that is:

1. Controlled by the entity
2. Resulting from past events
3. Has future economic benefits (can be converted to cash)

Examples: Cash, pre-paid expenses, accounts receivable, inventory, buildings, equipment, land

What does this mean?:

1. Controlled: The company has the ability to use it however they want – they can sell it to someone else, give it to someone else, use it internally
2. Resulting from past events: the transaction that gave control to the Company has already happened in the past
3. Economic benefits: essentially has value

Example: Truck used for delivering agriculture products

1. The Company controls the truck – they can drive it anywhere, they can sell it, they can take it to the mechanic for repairs, can lend it to employees on the weekend
2. The Company purchased the truck in the past and paid for it. If the Company was in discussions with the owner of the truck but had not yet made closed the transaction, the truck is not considered an asset for the Company. Rather it would be an asset for the owner still trying to sell it.
3. The Truck is used to make deliveries (i.e. earn revenue). Alternatively it could be sold for cash.

QS: What are some examples of assets?

We’ll now briefly discuss the most common assets you’ll come across.

Assets – examples

Cash: money held in physical form or in bank accounts

Accounts receivable (debtors): money owed to a company by its clients

Inventory (stock): products held by the company waiting to be sold

Buildings/land/equipment: used by the company for operations

Intangible assets: software, trademarks

Prepaid expenses: future expenses that have been paid in advance (a cost that has been paid but has not been used up)

Exercise

The attached file is the financial statement of one of the biggest companies you may know.

They are a Rwandan brewing company, almost 66 years old (established in 1959). They produce the Rwandan beer Primus.

Review the statement of financial position and identify the assets. Jot down what criteria are met for each; we’ll discuss.

Note down any assets you identified that you don’t recognize.