Understanding Assets in Accounting, Types of Assets, Cycles, Planning and Use of Assets

Understanding Assets in General

What are assets? Assets are all economic resources owned by an entity that are expected to provide business benefits in the future. In accounting (read: understanding accounting ), assets or assets included in the balance sheet with a normal debit balance.

The economic resources or wealth are all resources owned, whether in the form of objects or power obtained in the past and intended to provide benefits in the future.

To get recognition as an asset, all of these economic resources must first be measured in units of currency, be it dollars, rupiah or other currencies.

There are several common ways to get assets, for example by buying, building your own, and exchanging assets.

Also read: Definition of Investment

Understanding Assets According to Experts

The definition of assets is also explained by experts, both through opinions, theories, assumptions, and also through law. The following is the definition of assets according to experts:

1. Hidayat

According to Hidayat, the definition of assets is movable or immovable goods or objects, both tangible and intangible , where all of these include assets or assets of an organization, agency, business entity, or individual.

2. Munawir

According to Munawir, the definition of assets is a means or resource that has economic value that is able to support a company in its acquisition price or its fair value must be measured objectively.

3. Siregar

According to Siregar understanding of assets is a good (thing) or for something (anything) that has a use value or economic (economic value) , tilapia commercial (commercial value) or exchange (exchange value) which is owned by a business entity , institution or individual.

4. Indonesian Institute of Accountants (IAI)

According to IAI, the definition of assets is the resources that are controlled by the company as a result of events that occurred in the past and bring future economic benefits to the company.

5. Statement of Financial Accounting Standards (PSAK)

According to PSAK No. 16 revision in 2011 means that assets are all assets owned by a person or company, tangible or intangible that is valuable or valuable that will bring benefits to the person or company.

6. International Accounting Standards Committee (IASC)

According to the IASC, an understanding of assets is a resource that is controlled by the company as a result of past events in which the company is expected to get economic benefits in the future.

7. International Financial Reporting Standards (IFRS)

According to IFRS the definition of an asset is a source that is controlled by an entity as a result of past events (for example creating itself or buying) and from future economic benefits (cash inflows and other assets) expected.

8. Financial Accounting Standards Board (FASB)

According to the FASB, the notion of assets in their conceptual framework (SFAC No. 6, prg. 25) is as a definite future economic benefit obtained or controlled / controlled by an entity as a result of a transaction or a past event.

Also read: Definition of Capital

Types of Assets

As mentioned earlier, assets are rights that can be used in company operations. Some objects which are considered as assets include; buildings / buildings, cars, trademarks, technology patents, cash, and other valuables.

In general, assets are divided into several categories for analysis purposes (read: definition of analysis )

1. Current Assets

Understanding current assets are assets that are expected to be realized and provide benefits in the short term, which is around one year. This current asset is in the form of short-term investments, cash, accounts receivable, inventory, costs to be paid, and income that is still received.

2. Fixed Assets

The definition of fixed assets is assets that have a form and are ready to be used / functioned in the company’s operations. Fixed assets are not intended for sale, and have benefits for more than one year. Some fixed assets include; building, land, long-term investment.

3. Intangible Asset

The definition of intangible assets is fixed assets that have no form and have benefits by giving economic and legal rights to their owners. Some of these intangible assets include; trademarks, franchises, copyrights, goodwill, patents.

4. Other Assets

This other asset is a description of various items that cannot be properly classified as current assets, fixed assets and intangible assets.

Also read: Definition of Equity

Asset Life Cycle

Hindrawan said that the life cycle of an asset or group of assets consists of four phases, namely planning, procurement, operation and maintenance, and deletion. The following is a brief explanation of the life cycle phase of these assets:

  • Planning Phase, which is the stage where the company identifies the need for demand for assets.
  • Procurement phase, which is the stage when an asset is built or made, even bought. The procurement of these assets depends on needs and according to plan.
  • Operation and Maintenance Phase, which is the stage when an asset is used / utilized for its intended purpose. In this phase there is usually also a renewal, repair, and replacement activity that is carried out continuously on the assets.
  • Write-off phase, which is the stage where the economic life of an asset has expired or when the need for the asset has disappeared.

Asset Planning

Still according to Hindrawan et al, good asset planning should consist of the following things:

  • Identify the demand for assets, and buy assets as needed.
  • The asset procurement plan should emphasize the type and timing of the asset needs, and explain how the asset is procured.
  • Maximizing the use of existing assets so that the procurement of new assets is not necessary.
  • Conduct an evaluation of the assets owned, whether it has good performance or it requires high costs in its operations.
  • Make a priority scale in the procurement and or addition of assets
  • Make various considerations of non-asset solutions to reduce the need for assets

Use of Assets

When reading the balance sheet, company management must examine the value of assets in detail because this becomes the basis in measuring the company’s financial performance. This financial performance measure will later be the basis of management’s decision whether to maintain or increase assets.

1. Efficient Use of Assets

The ratio of sales / total assets is one measure in valuing assets. The assumption is that the use of assets is considered efficient if the company can realize greater sales.

The sales figure is seen from the company’s income statement, while the total asset figure is seen from the balance sheet. This can be seen from the ratio of the last year compared to several previous years.

2. Optimization of Profits

The return on assets or investment returns can also be a measure in assessing profit or profitability. This figure is derived from the ratio of profit figures (from the income statement) and total assets / total assets, where the value is equal to the total investment.

Assuming management is the party responsible for the utilization and maintenance of all assets used by the company, management is responsible for increasing profits generated from total assets.

Also read: Definition of Dividends.

Thus a brief explanation of the definition of assets, types of assets, asset life cycle, planning and use of assets. Hopefully this article is useful.

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