Day 2 – Understanding Assets in Accounting | 50 Days Accounting Challenge
Welcome back to the 50 Days Accounting Challenge by CA Devesh Thakur.
In Day 1, we understood the meaning of accounting, its objectives, and the importance of basic terms. Today, in Day 2, we’ll go deeper into one of the most fundamental concepts – Assets.
This blog is especially designed for Class 11 students, beginners in accounting, and even CA/Commerce aspirants who want to build a strong foundation.
What are Assets?
In simple terms, Assets are valuable resources owned by a business which provide future economic benefits.
Think of assets as anything that your business owns or controls today, from which it expects benefit in the future.
Formal Definition:
“Assets are resources controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise.”
Example for Students:
- If you run a stationery shop and you have stock of notebooks worth ₹10,000, that’s an asset.
- If you buy a building for your coaching center, that’s also an asset.
So, whether it is cash, stock, building, or even a patent, all come under assets.
Features of Assets
- Owned or Controlled by Business – The business must have ownership or rights over the asset.
- Future Economic Benefit – Assets are expected to generate income, cash, or utility in future.
- Result of Past Events – Asset comes into business because of some past transaction (like purchase of machinery).
- Measurable in Money – Only those resources which can be expressed in monetary terms are considered assets.
Classification of Assets
Assets are not all the same. To understand accounting properly, we divide them into categories.
1. Current Assets
These are assets which can be converted into cash within 12 months or within the business’s operating cycle.
Examples:
- Cash in hand, Cash at bank
- Stock (inventory)
- Debtors (amount receivable from customers)
- Short-term investments
Example for Students:
If your shop has notebooks worth ₹10,000 that you will sell within a few months, that stock is a current asset.
2. Non-Current Assets
These are long-term assets, which give benefits for more than one year. They are not meant for quick sale.
Examples:
- Land
- Building
- Machinery
- Furniture
Example for Students:
If your coaching institute buys benches for classrooms, they will be used for years, not sold quickly. That’s a non-current asset.
3. Fixed Assets (Subset of Non-Current Assets)
Fixed Assets are the backbone of business operations. They are used for running the business and not for resale.
(i) Tangible Fixed Assets
Assets that have a physical existence and can be touched/seen.
Examples: Land, Building, Plant, Machinery, Vehicles, Furniture.
Student Example: A computer in your institute → Tangible Asset.
(ii) Intangible Fixed Assets
Assets without physical form, but still valuable for business.
Examples: Goodwill, Patents, Copyrights, Trademarks, Software.
Student Example: If your coaching institute develops its own app, the app software is an intangible asset.
(iii) Fictitious Assets
Be careful – these are not real assets. They neither have a physical existence nor future benefit. They are shown in the balance sheet only for accounting purposes, usually as expenses not written off.
Examples:
- Preliminary expenses
- Discount on issue of shares or debentures
- Loss on issue of debentures
Student Example: If a company spends ₹50,000 on advertisements for launching a product, the benefit of that expense may last for 2–3 years. Until it is fully written off, it may be shown as a “Fictitious Asset”.
Summary
| Category | Meaning | Examples |
| Current Assets | Convertible into cash within 1 year | Stock, Cash, Debtors |
| Non-Current Assets | Long-term use, more than 1 year | Land, Machinery |
| Tangible Fixed Assets | Physical fixed assets | Building, Furniture |
| Intangible Fixed Assets | Non-physical but valuable | Patents, Goodwill |
| Fictitious Assets | Not real, just accounting entries | Preliminary expenses, Loss on debentures |
Tricks to Remember
- Quick-to-Cash → Current Asset
- Long-term Use → Non-Current Asset
- Touch & See → Tangible Asset
- Can’t See but Valuable → Intangible Asset
- Not Real, Just in Books → Fictitious Asset
Importance of Assets in Accounting
- Helps in Preparing Balance Sheet – Assets are one of the two main pillars of financial position.
- Shows Financial Strength – More assets = stronger business.
- Basis for Depreciation/Amortization – Tangible & Intangible assets are used to calculate expenses.
- Decision Making – Helps management decide investment and financing needs.
- Valuation of Business – Assets help in determining the overall worth of a business.
Real-Life Example
Let’s imagine Riya opens a bakery:
- She invests ₹5,00,000 in cash → Current Asset.
- Buys land for the bakery → Non-Current Tangible Asset.
- Purchases an oven → Tangible Fixed Asset.
- Registers a brand name “Sweet Delights” → Intangible Asset.
- Spends ₹40,000 on advertising at launch → shown as Fictitious Asset (till written off).
This bakery’s balance sheet will clearly show all five types of assets.
Common Mistakes Students Make
- Confusing Intangible Assets with Fictitious Assets.
- Intangible = real but non-physical.
- Fictitious = not real at all, just an accounting treatment.
- Assuming all assets can be quickly sold.
- Wrong! Only current assets are meant for quick conversion.
- Forgetting that prepaid expenses (like prepaid insurance) are also considered assets.
Frequently Asked Questions (FAQ)
Q1. Is Goodwill a Tangible or Intangible Asset?
Ans: Goodwill is an Intangible Asset because it has value but no physical existence.
Q2. Why are Preliminary Expenses called Fictitious Assets?
Ans: Because they don’t represent real assets. They are just expenses not yet written off, temporarily shown as assets.
Q3. Is Stock a Current Asset?
Ans: Yes, because it is expected to be sold and converted into cash within the year.
Q4. Can a Non-Current Asset ever become Current?
Ans: Yes, if management decides to sell land/building as part of normal business, it will be classified as a Current Asset.
Conclusion
Assets form the backbone of accounting. Without understanding assets, you cannot prepare a balance sheet or analyze financial statements.
- Current Assets show short-term liquidity.
- Non-Current/Fixed Assets show long-term strength.
- Tangible Assets show physical infrastructure.
- Intangible Assets show intellectual and brand value.
- Fictitious Assets show temporary accounting treatment.
By mastering these, you lay a strong foundation for advanced topics like Depreciation, Amortization, Valuation, and Financial Analysis.
