Lesson #3 - The First Element - ASSETS

Definition:
ASSETS are future economic benefits that you control as a result of past events.

Remember two key things here that give ASSETS their meaning: -

1. Future economic benefits
2. Control

Firstly, "future economic benefits" means that the item is CASH or can be readily converted into CASH.

Secondly, "control" means you OWN it (it's yours!) or you can deprive someone else from using it as you have full power over it. No one else can "touch" it but you.

Don't we just love those baggy pants?

Examples:
1. Cash and cash equivalents

RIP Johnny...

No, not THAT Cash...

...THIS Cash!

2. Investments
Equities that you purchased from the stock market, or government bonds that you have bought

Maybe 2008 wasn't a very good year for the stock market after all?

3. Inventory
Goods or raw materials that you purchased for resale

So...Which shelf do you want these to go again?

4. Debtors (also known as Trade Receivables)

Cash that your customers owe you after they have bought something from you in credit, and haven't paid you yet

5. Fixed Assets
Property, plant and equipment that you bought for use in your business e.g. land, building, machinery, office furniture, laptops, motor vehicles etc


6. Prepayments (also known as Prepaid Expenses)
Expenses that you have paid in advance, for example a bill or invoice that you pay upfront or in advance, BEFORE you consume or use the product or service. At the very moment that you pay for it, it's an ASSET to you!

However, once you consume or use it, then it is no longer an asset (it becomes an "EXPENSE" - we'll talk more about that later...)

Short Term or Long Term:
ASSETS can classified into Short Term or Long Term.

Short Term Assets = Current Assets = Assets that last for less than one year i.e. 12 months

Long Term Assets = Non-Current Assets = Assets that last for more than one year i.e. 12 months

The Nature of Assets:
I'm sure you've heard of something called "DEBITS" and "CREDITS". In accounting, "DEBIT" means "Left" and "CREDIT" means "Right".

Huh? So what? Why are you telling me this?

Just remember for now that ASSETS are DEBIT in nature.

Another thing to remember is - When ASSETS get BIGGER or INCREASE they will head in a DEBIT direction. Conversely, when ASSETS get SMALLER or DECREASE, they will head in a CREDIT direction.

In Conclusion:
As ASSETS are future economic benefits that you control or OWN, let's pay tribute to ASSETS through a cheesy song!

Here it is! "Everything I Own" by Bread.

Or if that doesn't tickle your fancy, here's a cover version by a lesser known band from Malaysia called Lost Souls.

Enjoy!!!