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Recall that assets are resources that have future economic benefits for the business. The primary purpose of assets is that they be used in day-to-day operating activities in order to generate revenue either directly or indirectly. A separate account is established for each asset. Examples of asset accounts are reviewed below.
- Cash has future purchasing power. Coins, currency, cheques, and bank account balances are examples of cash.
- Accounts receivable occur when products or services are sold on account( or “on credit”). When a sale occurs on account or on credit, the customer has not paid cash but promises to pay in the future.
- Notes receivable are formal promises to pay accounts receivable on a specific future date along with a predetermined amount of interest.
- Unused supplies are things like paper, staples, and other business stock to be used in the future. If the supplies are used before the end of the accounting period or immaterial in amounts, they are considered an expense of the period rather than an asset.
- Merchandize inventory are items to be sold in the future.
- Prepaid insurance represents an amount paid in advance for insurance. The prepaid insurance will be used in the future.
- Prepaid rent represents an amount paid in advance for rent. The prepaid rent will be used in the future.
- Buildings indirectly help a business generate revenue over future accounting periods since they provide space for day-to-day operating activities.
- Land cost must be in a separate account from any building that might be on the land. Land usually has an indefinite useful life.
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