The Assets’ Nature

Authorized ownership isn’t the simply criterion for categorizing something in accounting terms as an asset; for moment, somebody purchases an item on rent purchase but doesn’t become the holder of the items rented, he may record that item as an asset giving that the corresponding requirement is also revealed.

In an accounting sense “ownership” normally implies “legal ownership”, but there are few exceptions; a curiosity in tangible or intangible objects, or a right to value, joint with the rights of possession and right of use also comprises an asset for the interested party.

If someone is the owner of the value or economic advantage arising from particular source, then that source is as asset for the individual concerned and is the economic owner, even if he may not be the authorized owner. Within such case accounting substance should take priority over legal form, in determining the most appropriate accounting process.

The main function of the accounting is to decide profits. The creation of the profits, however, needs capital investment to give the facilities required by enterprise to operate constantly and indefinitely.

Previously, expenses which are acquiring by not allocated as a cost during a period are deferred prices. From an accounting point of view, they represent an asset. If these prices can be improved within a year, they are recent assets and if they are recoverable over a longer period they are fixed assets.

This categorization of asset is necessary for determining income and also to demonstrate the position of the enterprise at particular time. The intention of getting fixed assets is to utilize them to produce profit. They aren’t obtained for the resale purpose. The fixed asset must create goods that make income.

The biggest fixed assets category in accounting language is tangible, like machinery, buildings and vehicles, these all assets are subject to reduction that must be allocated annually as a price.