Assets explained

An asset is something that:

  • you have paid for and
  • you expect to benefit from in the future.

Cash is an asset.  So is merchandise held for sale.  So is a receivable, money owed to you by a customer.  Larger assets can include a car that you own or real estate.  Even a software program or website design that you paid for can be an asset.

Critical to the idea of an asset is that you expect to benefit from it in the future.  If something loses its value (for example, your merchandise becomes spoiled), then the benefit will disappear and it is no longer an asset.  It becomes an expense.

When you are trying to decide whether to buy a new asset (such as one of those slick MacBooks), consider how it will increase revenue and profits for your business.  If it won’t increase revenue and profit, then don’t buy it.

Business-wise, we like assets because they produce revenue and profits.

Tax-wise, we are not so crazy about assets because you usually can’t deduct them immediately.

About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.

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