Types of Assets
Investing activities supply the resources that an organization needs in
order to operate.
Companies report those assets for which it can reasonably identify costs
and that are important to its operations on its balance sheet. Exhibit 1
asset section of the balance sheet for Mom’s Cookie Company.
Some resources, like human resources, a company needs to operate but
they are not reported on the balance sheet.
Most companies divide their assets into two major categories: current and
Current assets are those that management expects to convert to cash or
consume during the coming fiscal year.
Long-term assets include assets a company uses to produce and sell its
products. These assets provide benefits to a company that extend beyond the
coming fiscal year.
Long-term investments are investments in debt or equity securities issued
by other companies.
Property, plant, and equipment includes investments in tangible assets,
such as equipment, buildings, and land, that a company intends to use in the
future to sell or produce its products.
Intangible assets are those that provide legal rights or benefits to a
company and include patents, copyrights, trademarks, and goodwill.
Other assets include miscellaneous resources that are important to a
particular company and may include long-term receivables, long-term prepaid
assets, buildings and equipment that a company is attempting to sell, and natural
Property, Plant, and Equipment
Plant assets include the land, buildings, and equipment a company uses in
its operating activities.
The transactions associated with plant assets include their purchase and
disposal and their valuation on the balance sheet at the end of each fiscal period.
The purchase and disposal of plant assets are recorded at cost.
Plant assets are reported on the balance sheet at cost less accumulated
Land does not depreciate because it is not consumed.
Plant Asset Cost
The cost of plant assets includes the amount paid for the assets plus the
cost of transportation, site preparation, installation, and any construction
necessary to make the assets usable for their intended purpose.
The cost of property must be separated into its components: land, building
and equipment, since the land is not depreciated.