What Is an Asset in Accounting?
Definition, types of assets, and a worked example in plain English.
Home › Accounting Glossary › Asset
| Topic | Financial accounting · Balance sheet |
|---|---|
| Normal balance | Debit |
| Formula | Assets = Liabilities + Equity |
Asset in plain English
If something has value and the business can use it to earn money or pay its debts, it is an asset. Assets are split by how quickly they turn into cash. Current assets (cash, receivables, inventory) are expected to be used or converted to cash within a year. Non-current assets (equipment, buildings, patents) last longer.
Worked example
A bakery owns an oven worth 5,000, holds 1,200 in cash, and customers owe it 800. Its total assets are 5,000 + 1,200 + 800 = 7,000.
- Treating a cost that is used up straight away, such as wages paid, as an asset. That is an expense.
- Thinking assets must be physical. Patents and software are intangible assets.
Frequently asked questions
Is cash an asset?
Yes. Cash is the most liquid current asset.
What is the difference between current and non-current assets?
Current assets are expected to be used or turned into cash within one year or the operating cycle. Non-current assets are held for longer.
Do assets always have a debit balance?
Normally yes. Contra assets such as accumulated depreciation are the exception and carry a credit balance.
Keep learning
This page is for general learning. Accounting rules vary by country and standard.