What’s an Asset (Easy Accounting Meaning & Definition)

Don’t know what the meaning of asset is when it’s used in accounting? I’m going to explain to you the definition of what an asset is in simple and plain English.

You can watch the video below (2:08) or you can read on.

In accounting, an asset is just a category – simply a way to group things that help a business generate money. Just like if you were to organize food into food groups e.g. carbs, protein etc… purchases need to be organized and one of the ways they can be classified, is as an asset – something that the business keeps, holds or controls and which gives them a benefit over time.

The dictionary definition of an asset is “something you hold and that gives you a benefit.”

This definition is a bit vague so let’s see what assets can be in real things. Examples of common assets are:

  • Cars that you own (not rented)
  • A building that you own (not rented)
  • Computers that you buy and keep (not rented)
  • A truck (not rented)
  • A kitchen fit-out
  • A coffee machine that is purchased.

One of the ways you can think about it is through the analogy of the apple tree and the fruit.

The tree continues to grow and provide apples for people to pick and eat. The tree is an asset because it provides an ongoing benefit – i.e. apples for people. Contrary, if you were to pay only for apples only to eat, that wouldn’t be an asset because you pay for the benefit each time. You don’t pay for the source of the benefit i.e. the tree – the asset.

So what are some assets that aren’t commonly known?

  • Website that is developed.
  • Curriculum that is developed.
  • Brand names

Let’s go through the meaning of an asset in accounting in a business.

Let’s say a person owns a café and goes out to a shop to buy a few things. The things she buys may be expenses, or they could be assets. Assets are things that she’ll be able to keep and there are different types of assets.

For example, she may buy some cups that she’ll sell in her café. Those cups are a special type of asset called inventory. She buys the assets, to hold and then sell (getting the benefit of income).

She might also buy another set up cups that she’ll keep in her shop and that will be used to serve people their coffee if they want to dine inside (the benefit). That’s also an asset because the cups are kept in her business for a long time and she uses them, not consumes them.

Next: Unit 10 Activity 2 - Xero for Small Business Invoice Details

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