Welcome to this module overview related to assets.
For starters, I want to show you the FASB
definition of an asset.
It's the probable future economic benefits
obtained or controlled by a particular entity as a result
of past transactions or events.
That definition sounds very legal
so let's break it out into three parts.
Probable future economic benefit means
that an item will probably be worth something in the future.
If you have an item that is described this way,
you probably have an asset.
Obtained or controlled by a particular entity
means, at an accounting principles level,
that the company owns the item that has value.
There are many complex assets, often related
to certain type of lease agreements,
where a company doesn't own an asset
but controls it enough to call it an asset.
But that's beyond the scope of this course.
As a result of past transactions or events
means that a transaction exists where the acquisition
of an asset can be verified.
If these three components describe an item,
then that item is an asset and needs
to be reported on the balance sheet.
Balance sheet reporting of assets
classifies them into two categories--
current assets and long-term assets.
Current assets are assets that are
expected to be converted to cash or used up within one year.
Some common examples of current assets are listed on the slide
and include cash, accounts receivable, inventory,
supplies, and other prepaid expenses.
Long-term assets are assets whose value is expected
to last beyond one year.
They are often categorized on the balance
sheet in the following four categories--
long term investments, plant assets, intangible assets,
and other long-term assets.
Let's look at the four assets we're
going to cover in this module.
Our first asset is cash.
The cash account includes currency,
coins, checking accounts, and undeposited checks received
from our customers.
Additionally, we will learn about internal controls
over cash.
We will introduce the accounting for inventory in this course.
For merchandise firms, inventory is a current asset, which
includes items held for resale.
Manufacturing firms, which we will
learn about in the managerial accounting
portion of this course, have several inventory accounts
including raw materials, work in process, and finished goods.
Receivables are the money that a company has the right
to receive because it has provided customers
with goods or services.
There are a few different categories of receivables,
but we will focus on accounts receivables and notes
receivables.
In our course, these receivables are going to be current assets.
However, long-term notes receivables
are quite common in practice.
The final asset is plant asset, which
includes long-term assets, such as building and equipment used
by a company.
Plant assets are sometimes called
fixed assets, sometimes called property plant and equipment,
or PP&E for short.
These terms all mean the same thing.
Unlike the current assets, plant assets
are depreciated over their useful lives.
And we will learn all about how to do
that and many other things in this module covering
key assets.