At the heart of accounting are assets – it is an asset-centric story!
Assets are an element of the balance sheet and are a 'use of funds' (green).
The assets element is the only place where you will find anything tangible or valuable (other elements in the BaSIS Framework contain quantified dollar values, but are not ‘valuable’).
There are two recognition criteria that must be met in order to recognise an asset; the item must be under the control of the business and it must be measurable.
Assets that are commonly found on a business’ balance sheet include: inventory, land and buildings, motor vehicles, accounts receivable and most importantly… cash!
Assets are so important to a business because they are used to generate income.
One way to measure how efficiently the assets are working to generate profit is the Return on Assets ratio, which is calculated as Profit for the period divided by Total Assets.
Insights from Justin Martin, Colour Accounting Facilitator