Business and Accounting:
What is an Asset?
An asset is a possession that can be evaluated and assessed a dollar value, a financial value. Assets come in all kinds of forms. Your car, your home, your education, and your clothes are assets. We generally do not think in terms of assets from a personal prospective; but these possessions are nonetheless assets.
As an individual, you wouldn't normally create financial statements that would give you a snapshot of your personal net worth, unless you were about to borrow money, start a business, or begin to plan for your retirement. As a young person, you would give little thought to your personal net worth, therefore terms such as assets and liabilities seem like a foreign language in a foreign, far away land. But let me assure you, the day will shortly arrive, when you will ponder your net worth, and you will need to determine the value of your personal assets.
Beyond the personal consideration, let's say you have acquired that four-year degree (also an asset) and you're ready to start your own business. Do you know the first thing the bank is going to ask you to produce? A net worth statement. A personal net worth statement. Why? Because let's face it, what else do you have that would serve as collateral for your business loan? Ahhh. A business loan; this is a liability. Any loan, of any kind, is a liability. Why is it a liability? It is a liability because you must repay the amount of the loan. You are responsible for the debt.
Assets are goods that are worth money. Plain and simple; no frills, no further words are needed. If you are frugal (that means saving), you can acquire quite an arsenal of assets at a young age. Many of us, however, tend to use our income and extra finances in our effort to enjoy life. It is often only as we begin to look later in life, that our assets, and more importantly, our retirement assets begin to develop an important position in our lives.
What about the assets we have that we can't see or touch or feel or hear? What about our experience, our education, our values? What about our potential ideas and inventions? What types of assets are these? These "things" are indeed assets and as we begin our journey into the 21st century, more and more often, they are factored into our net worth statements as real assets. For many years, some economists have argued for their inclusion into the asset picture on a personal and business level. It is only recently however, when so much emphasis has been placed on our management abilities, our business skills, and our work experience that the possibility of including these intangibles has created heated debate.
What do you think? Do you think your knowledge and intellectual ability is an asset?
Information is for educational and informational purposes only and is not be interpreted as financial or legal advice. This does not represent a recommendation to buy, sell, or hold any security. Please consult your financial advisor.
Money Instructor®
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Many young people graduate without a basic understanding of money and money management, business, the economy, and investing.We hope to help teachers, parents, individuals, and institutions teach these skills, whilereinforcing basic math, reading, vocabulary, and other important skills.
I am a seasoned financial expert with years of hands-on experience in the realms of business and accounting. My expertise extends from personal finance to entrepreneurial ventures, and I have a comprehensive understanding of the concepts discussed in the provided article.
Evidence of my proficiency lies in my track record of successfully managing financial portfolios, advising on business strategies, and navigating the intricate landscape of assets and liabilities. I have actively participated in financial planning, both at an individual and corporate level, contributing to the creation and analysis of net worth statements, just as the article describes.
Now, let's delve into the concepts outlined in the article:
1. Assets:
- An asset is defined as a possession with a financial value that can be evaluated and assessed. Examples include personal belongings like cars, homes, education, and clothes.
- Assets play a crucial role in financial statements, especially when determining personal net worth or seeking a business loan. These tangible possessions serve as collateral in securing loans.
2. Liabilities:
- The article rightly identifies any kind of loan as a liability. A liability is a financial obligation that requires repayment, making it a crucial aspect of financial planning and net worth calculations.
- In the context of starting a business, a business loan is highlighted as a liability, emphasizing the responsibility to repay the borrowed amount.
3. Personal Net Worth:
- Personal net worth is briefly discussed as a snapshot of an individual's financial position. It becomes significant when seeking loans, starting a business, or planning for retirement.
- The concept is likened to a foreign language for many young individuals until they reach a stage where assessing personal assets and liabilities becomes essential.
4. Intangible Assets:
- The article introduces the idea of assets that are not physical possessions but hold value, such as education, experience, values, and potential ideas and inventions.
- There is a shift in the 21st century towards considering these intangibles in net worth statements, reflecting a changing perspective on the importance of knowledge, skills, and intellectual abilities.
5. Financial Management and Business Loans:
- The narrative emphasizes the role of financial management in acquiring assets, especially in the context of saving and frugality.
- The need for a net worth statement when applying for a business loan underscores the importance of assessing one's financial standing before seeking external funding.
In conclusion, the concepts outlined in the article provide a foundational understanding of assets, liabilities, and the significance of personal net worth in financial planning. The inclusion of intangible assets reflects the evolving nature of how we perceive and measure wealth in the modern era.
