Information > Financial Terms > This page Assets To
be an asset, a resource other than cash must have three essential characteristics: 1.
The resource must, singly or in combination with other resources,
contribute directly or indirectly to future net cash inflows. 2. The enterprise must be able to obtain the benefit and to
control the access of others to it. 3.
The transaction or other event giving rise to the enterprise's
right to or control of the benefit must already have occurred. Assets
currently reported in the financial statements are measured by different
attributes, including historical or acquisition cost, current (replacement)
cost, current market value, net realizable value (selling price of the
item less direct costs necessary to convert the asset), and present value
of future cash flows, depending on the nature of the item and the relevance
and reliability of the attribute measured. Assets
are recognized in the financial statements when the item meets the definition
of an asset, when it can be measured with sufficient reliability, when
the information about it is capable of making a difference in user decisions,
and when the information about the item is reliable (verifiable, neutral,
or unbiased, and representionally faithful).
Assets need not be recognized in a set of financial statements
if the item is not large enough to be material and the aggregate of individual
immaterial items is not large enough to be material to those financial
statements. Assets
are usually classified on a balance sheet in order of their liquidity
(or nearness to cash) as follows: 1. Current assets. 2. Long-term investments. 3. Property, plant, and equipment. 4.
Intangible assets. 5. Other assets (including deferred charges and organizational
costs). Current
assets are cash and other assets that are reasonably expected to be converted
into cash, sold, or consumed within the normal operating cycle of the
business or one year, whichever is longer.
An operating cycle is the average time required to expend cash
for inventory, process and sell the inventory, collect the receivables,
and covert them back into cash. Accounts
appearing on the balance sheets of banks include: Cash
and due from banks: Currency
and coins held by tellers reserve cash in the vault.
Due-from-bank items represent deposits with correspondent banks. Federal
funds sold: Claims to
deposits held by the Federal Reserve for member banks that enable them
to meet reserve requirements. The
purchase and sale of federal funds is sometimes used for short-term adjustments
to market and regulatory conditions. Investments
in U.S. Treasury securities: U.S.
government marketable obligations, including Treasury bills, notes or
bonds. Investments
in obligations of states and political subdivisions:
Debt securities referred to as municipal bonds and tax-exempt bonds. Real
estate loans:
Loans resulting from real-estate purchases and development transactions.
The real estate serves as collateral for the loan. Commercial
loans:
Loans made for business purposes. Instalment
loans:
Consumer loans. Office
buildings, equipment, and leasehold improvements:
Historical cost of bank property used for banking purposes less
accumulated depreciation. |