Definition of Assets: Types, Classifications, Examples, and Their Roles

Definition of Assets Types, Classifications, Examples, and Their Roles –┬áKeep in mind that business is not only about capital. Because, a business that is built must have prepared everything to the maximum. Starting from the initial capital, the necessary employees, and the place of production or shop. To fulfill it all, business owners must have sufficient funds. If you don’t have the funds, then how can a business be built and developed as we have in mind?

In a business, any assets or assets owned can be said to be assets. But unfortunately, many business owners are unable to maintain their assets so the business they run has many obstacles and even suffers losses and goes bankrupt. Therefore, you need to know what an asset is and how important it is to your business.

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For your information, assets are one of the most important factors in the success of a business. Therefore, every business owner must include it in the creation of a COA or Chart of Account.

Definition of Asset

Definition of Assets Types, Classifications, Examples, and Their Roles

Before getting to know more about assets and understanding what types of assets are. It would be better if we first understand the meaning of assets in general. We must understand these definitions or definitions to avoid misunderstandings or misconceptions that can make us wrong in assessing what assets are.

So, asset is a term that is interpreted into several meanings and is distinguished based on the subject. For the first definition, we will take it from the Big Indonesian Dictionary, in the KBBI it states that assets are wealth in the form of money or other tangible objects.

Meanwhile, according to Wikipedia, an asset is one of the normal debit balances or economic resources that can provide business benefits in the future. The definition of other assets disclosed by several experts in a journal. The following is a full explanation.

Understanding Assets According to Experts

Assets are one of the most important concepts in accounting. In addition to the general understanding as described above. A number of experts as well as government regulations are also used as sources to find out what is meant by assets. The following are some examples in question:

a. Hidayat revealed that the definition of assets is goods that are legally divided into movable and immovable objects, tangible or tangible and intangible or intangible.
b. Munawir revealed that an asset is a resource or facility that has economic value and functions as a support in measuring the price to get it or the fair value of the company.
c. According to PP RI No. 24 of 2005 reveals that the definition of assets is divided into two, namely current assets or current assets and non-current assets.

However, there are at least three things that underlie a tangible object such as an asset, including:

1. Ownership: Assets that are categorized based on the assets owned by a person but can be converted into money or other objects intended to develop a business.
2. Economic Value or Economic Value: Assets that have economic value. In other words, an object that can be worth a certain nominal amount of money.
3. Resource: An asset that a company owns and has the benefit of providing future income.

Types of Assets According to Physical Existence

Assets do not only have one type, but are also classified first and then filled with various types of assets according to their class. The first classification is a classification in the form of types of assets according to their physical existence. If according to physical existence, assets are further divided into two, namely tangible assets and intangible assets.

Tangible assets consist of anything that can be felt and also seen by the naked eye. Among other things, land, houses, gold, money, office equipment, machines, cash, securities, merchandise, and other objects that we can see with the naked eye. While intangible assets are the opposite of tangible assets. Among other things, patents, intellectual property, good will, trademarks, permits, copyrights, and so on.

Types of Assets by Convertibility

The next asset classification is divided into two more specific types, including current assets and non-current assets. Here is the full explanation:

1. Current Assets

Current assets are one of the most liquid types of assets. In other words, these assets are the easiest and fastest type of assets to convert into cash. Current assets have a relatively short cycle or turnover and benefits. Usually, the current asset turnover period is one year or within a company’s normal cycle. Due to the very fast turnover of assets, the benefits of current assets are also classified as quickly depleted. However, once exhausted, these assets will be replaced by other assets or assets. This condition continues until the end of the period. Examples of current assets that we can easily find are short-term investments, cash, accounts receivable, equipment, inventories, notes receivable, prepaid expenses, and income that is still to be earned.

2. Non-Current Assets

Non-current assets are assets that have a useful life cycle and period of more than one year. Non-current assets are divided into three parts, including:

a. Fixed assets

Fixed assets are assets that have a physical form or form. Fixed assets are usually used and utilized by companies for production activities, be it goods or services. So that the purpose of having fixed assets is not to be sold again, but to be used for company operations. Fixed assets can be sold by the company if the period or useful life of the asset has started to run out, is damaged, and has problems. Examples of assets that are included in the type of fixed assets are buildings, machinery, land, buildings, vehicles, and others.

b. Intangible Assets

In addition to fixed assets, in the category of non-current assets there are also types of intangible assets. This type of asset is an asset that is not visible or physically visible but has value and benefits for the company itself. As for some examples of intangible assets, namely patents, building rights, goodwill, lease rights, patents, and others.

c. Long term investment

Investment is an asset that is used with the aim of obtaining wealth growth. In this case, the investment made is a long-term investment. In other words, the investment in question includes all long-term investments made by a company. Either in the past or in the present. For example, company A invests in company B, company A must always record the assets in the form of these investments in their balance sheet statements.

Examples of Assets by Use

In the second asset classification, the division of categories is done by looking at the function and purpose of the existence of assets for a company or individual. Assets here are divided into two categories, including:

a. Operational assets are assets or objects needed in the operational activities of a company in order to generate income from various business activities. For example, inventory, cash, buildings, machinery, equipment, patents, and so on.
b. Non-operational assets are assets that are not used in daily business activities. However, it is still useful for generating income. For example, vacant land, short-term investments, interest income, and also securities.

Asset Classification Is Important

For medium-sized businesses to large businesses, understanding asset classification is very important. Companies must be able to divide which assets are tangible and which are intangible assets. This is done in order to determine the risks that might occur and their solvency. Even so, it is possible that startup businesses or small businesses as well as individuals are also advised to understand how to classify assets.

Asset Properties

Not only the definition and also the types, you also need to understand what are the characteristics of an asset in general. There are three main characteristics of an asset, namely resources, ownership, and economic value. An asset is definitely a resource that can be utilized in the future. Not only that, assets also clearly have economic value. Because assets can be traded easily. Then, assets can also reflect a person’s wealth which can be converted into cash or other forms of wealth.

Asset Usage

Besides being important to own, of course an asset also has benefits and uses that can benefit its owners. You can use assets in two forms of use, namely operational assets and non-operational assets.

1. Operating Assets

This type of asset is an asset that can be used for daily needs. Be it for personal or business purposes. Assets can also be used for other needs, namely copyright, business equipment, machinery, merchandise, and so on.

2. Non-Operational Assets

The opposite of operational assets, non-operational assets are assets that are not used for daily needs. For example, interest on deposits, vacant land, securities, and also investments.

The Importance of Assets in a Business

If we look at the definition of assets in general, we can conclude that an asset is one of the assets that is very useful for the daily life of its owner. More importantly, can these assets be used and utilized as a medium that will generate greater income? The answer of course is yes. Because every object that is useful and of value to the business, it should be included in the assets section. Simply put, assets will become one of the most important things in a business if it takes one of the following three factors into account:

1. Can generate future income
2. Have more value in product manufacture
3. Can facilitate business and make it easier to manufacture products

An object or cash will not be called part of an asset if it cannot generate profits for the company itself. However, it can still lighten the burden on the company. For example, cash cannot be called an asset if it is used to pay debts within a certain period of time. Do you understand what an asset is?

Thus a discussion of the meaning of assets, their types, and also the categories that are important for you to understand. Especially for business owners, this material is indeed one of the things that must be understood, so that they can classify their assets. That way, the business and company will run smoothly and can continue to grow.

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