What Is an Asset and Expense?

Topics: Generally Accepted Accounting Principles, Balance sheet, Expense Pages: 5 (1110 words) Published: February 24, 2013

1 What is an Asset?

An asset is an item that a company owns. Assets are divided into three basic groups: capital assets, current assets and intangible assets. Capital assets are typically owned for the long term and include buildings, land, vehicles and manufacturing equipment. Current assets are items that can quickly be converted to cash, such as actual cash, accounts receivable, inventory and investments such as bonds and stocks. Intangible assets are items that cannot be physically touched, including goodwill, patents and trademarks.

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2 What is an Expense?

Expenses are costs related to running the business. Expenses are deducted from revenue to determine the profitability of a company. Typically, the largest expense for a company is cost of goods sold -- raw materials, direct labor and other costs related to manufacturing or purchasing an item for resale. Depreciation of property, plant and equipment should also be captured in the cost of goods sold. Administrative expenses cover all expenses related to running the company. These expenses include selling and general administrative expenses, including indirect labor, taxes and other miscellaneous operating costs.

Read more: What Is the Difference Between an Asset & an Expense? | eHow.com http://www.ehow.com/info_12085244_difference-between-asset-expense.html#ixzz2Lt1DWL35

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In: Business & Finance, Business Accounting and Bookkeeping, Financial Statements, The Difference Between [Edit categories] Answer:
An asset is something of value that is controlled by the businesses. You may have current assets (items that will be available for up to 12 months) such as cash or office supplies and you may have non-current assets (items that will be available for more than 12months) such as a car. (PS on some non-current assets you will also have to take into consideration the depreciation of the asset)

An expense is outflows that are incurred when used to generate revenue, such as wages, rent, advertising etc. these are all items that the business must pay for in order for them to generate revenue. for example: if running a cafe, if the business operators don't pay wages to their staff, then they will not have anyone to serve customers, which in turn leads them to lose revenue.

Don't Mix Up Assets and Expenses

Annoying, but get over it. Don't call assets expenses, and don't call expenses assets. It's not a trivial distinction, it changes your business books, and the IRS cares about it a lot.

By: Tim Berry | AllBusiness.com | 
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Ouch, does that title on this post sound too nerdy and detail-oriented for demystifying anything? Sorry, but so many people get hung up on this. And it matters to your financial projections, so I say take a couple minutes, deal with it, and get on with your planning.

Assets are supposed to be physical, resellable, things of value that your company owns as part of the normal course of doing business. Expenses are supposed to be regular spending on goods and services that are used by the business to do it's work.

Where it becomes an issue is when people want to pretend that what they're spending as expenses are really building assets. For example, when you pay a programmer, that should be an expense, not an asset. You'd like to think that programmer is making something (like paying a bricklayer to make a wall) because it will make the books on your business look better.

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