In the definition, asset represents economic values in people, places, commodities, and et cetera managed by a country, corporation, or individual that would provide benefit in the future. In order to bring values and benefit from the firms’ operations, the firms bought and reported their assets on the balance sheet. Therefore, the assets in the future could generate cash flow, reduce expenses, and improve sales. These all would be the expectation of the firms whether it is manufacturing equipment or a patent.
Understanding an asset sometimes leads to a definition where it becomes an economic resource of a company or gives access that other individuals, firms, or competitors do not have. The right or other access is in the form of legal enforcement. Therefore, firms or companies have discretion. So, the owner could preclude or limit the asset use.
A company cannot all of a sudden own the asset. In order to legally own an asset, a company must possess a right to it. The right should be as of the date of the financial statements. This is because the economic resource of an asset could be something scarce. But it could produce economic benefit by creating cash inflows or decreasing cash outflows.
Asset category is four. They are short-term or current assets, fixed assets, financial investments, and intangible assets.
