Definition
A present economic resource controlled by the entity as a result of past events. An economic resource is a right that has the potential to produce economic benefits.
Three Criteria of Definition
- Right: Rights can involve an obligation of another party (e.g. to receive cash, goods or services), and can also represent rights over assets.
- Control: Control often equates to ownership.
- Potential economic benefit inflow: The potential to produce economic benefits need not be certain.
Current vs. Non-Current Assets
Assets are generally classified as current or non-current according to their liquidity.
- Current assets: Expected to be converted into cash, sold, or consumed within one year (12 months). Crucial for managing day-to-day operations and ensuring liquidity.
- Non-current assets: Expected to provide economic benefits beyond one year (12 months). Essential for long-term growth and stability.
Examples
- Current: Cash, Accounts Receivable, Inventory
- Non-current: Equipment, Buildings
Debit and Credit
Increased by a debit, decreased by a credit. Normal balance: debit. See Debit and Credit.