What is an Asset?
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What is an Asset?
In simple terms an asset is something valuable that a business or individual owns or has use of. For something to be an asset it needs to have four key elements. Number one, present. The resource needs to exist at the reporting date of the financial statements. Number two, it is controlled by the entity. In other words the entity has the ability to direct the use of the resource and also obtain the benefits. Number three, it is a result of past events. So the control of the resource arose from a past transaction or event such as a purchase. And number four is that it has the potential to produce future economic benefits. And this includes cash inflows, reduction of outflows, or other similar benefits. So let's now have a look at an example with our friend Redd who has a company that had recently purchased a delivery van. This van is an asset because, firstly, it is a present resource because the van exists now and is in use at the reporting date of the financial statements. Secondly it is controlled by Redd's company which means they own it and decide how the van is used. Thirdly it was acquired as a result of a past event or in other words the company purchased the van and fourth and finally it has the potential to generate economic benefits by enabling the company and Redd to help deliver goods which ultimately contributes to generating revenue.
