Assets are the first element of the accounting equation and can be defined as anything that is owned (or controlled) by the business that provides a future benefit.
For example, if you we buy a piece of machinery, it has a future benefit and as we can use it to manufacture goods. Therefore, it is an asset. However, if we merely repair the machine there is no future benefit to paying that repair bill as this is only an expense.
You need to ask yourself – is there a direct future benefit from this cost? While there may be an indirect one in that the machine now works, there is no direct one.
The benefit also needs to be owned (or controlled) by the business. Merely having access to something is not enough – it needs to be controlled (or owned) by the business.
For example, if you have access to your Mum’s car but you don’t control or own it so it’s not an asset. However, if you bought one on your own or you went in with a friend to buy a car with a 50% share then it is an asset.
This is a useful scenario to remember, when trying to determine whether something is an asset or not.
Assets can be also broken into the sub-types – current or non-current:
Current Assets are those that are consumed in a twelve month period.
Examples of this include cash and inventory.
Non-Current Assets are those that you plan to hold onto for longer than twelve months. Examples of these include buildings, motor vehicles and land.