An asset is something of value a business controls and expects to derive future economic benefit from. Cash in the bank, machinery, stock, and amounts customers owe are all assets. Assets sit on the left side of the accounting equation: assets equal liabilities plus equity.
What it means
Control, not ownership, is the test - a business can hold an asset it does not legally own, such as equipment on a finance lease, if it controls the benefits. Assets are split by how soon they convert to cash: current assets within twelve months, non-current assets beyond. A debit increases an asset; a credit decreases it.
Where it fits in
Payroll touches assets mainly through the bank account that net pay is drawn from and through prepayments, such as salaries or benefits paid in advance. Any employee loan the business expects to recover is also an asset until repaid.
Key rules
- An asset must give the business control and probable future economic benefit.
- Assets appear on the balance sheet, classified as current or non-current.
- Debits increase assets; credits decrease them.
- Assets equal liabilities plus equity at all times.
