Tax Question:
What are assets on my company’s financial statements?
Facts:
An asset is considered a resource with economic value that can be measured in a monetary unit that is controlled by the corporation and expects to deliver a future benefit.
Discussion:
Assets can be classified as either current or long term, can be tangible or intangible. They may also directly generate cash flow and are usually recorded at historical cost (the value when acquired).
• Current assets usually have a useful life of less than a year meaning that they are sold, consumed or exhausted within 12 months. Some examples of current assets are cash, accounts receivable, short-term investments, inventory, and prepaid expenses. Current assets are usually more liquid, meaning they can be converted into cash very quickly if required.
• Long-term investments are usually listed separately in the asset section of the balance sheet. Some long-term investments include: stocks, bonds, and shares in other companies. These are generally held to generate cash flow and profits.
• Fixed assets are long term meaning they have a useful life over a period greater than one year. Some examples are buildings, land and manufacturing equipment. They are usually listed as Property, Plant, and Equipment on the Balance Sheet. They are purchased to generate future revenue from their use. They are capitalized and depreciated over their useful life for financial reporting purposes until they been fully depreciated or disposed of.
• Most assets are tangible meaning you can touch or feel them as they have a physical presence such as equipment. However, you may also have intangible assets which can not be seen and are harder to put a monetary value on them as it can be quite subjective. Examples of intangible assets are trademarks, patents, goodwill, or client lists. These are listed under a separate line item on the Balance Sheet.
Recommendation:
If you would like more information about assets that should be listed on your company’s financial statements, please contact Gilmour Knotts Chartered Accountants.