Assets are resources that are expected to provide the firm with future economic benefits.
Assets may be categorized as long-term or current. A current asset is an economic resource expected to be consumed or converted to cash within one year or an operating cycle, whichever is longer. A long-term asset is an economic resource not expected to be consumed or converted to cash within the greater of one year or an operation cycle.
Current assets include cash and equivalents, accounts receivable, inventory, and other current assets. Long-term assets are property, plant, and equipment (PP&E) and goodwill.
Assets may be further classified as tangible or intangible. Tangible assets have physical existence. Examples of tangible assets include real estate, machinery, and vehicles. Tangible assets are depreciated over their estimated useful life. Intangible assets lack physical existence. Examples of intangible assets include patents, trademarks, copyrights, and goodwill. Certain intangible assets have a finite life. These limited-life intangibles are amortized over their useful lives. Other intangible assets are assumed to exist in perpetuity. These intangibles are evaluated annually for impairment and written down if needed.
Different assets are accounted for using different methods. For example, short-term investments traded in a secondary trading market are accounted for using the marked-to-market method. An asset is marked-to-market when its value is written up or down depending on the price activity over the period. In contrast, inventory is accounted for using the lower of cost or market method (LCM). With the LCM method, inventory is initially recorded at its acquisition cost but marked down (never up) if the firm concludes that the inventory cannot be sold for its cost.
