ACCOUNTING TOOLS : INVESTOPIA : TUTORIALS : BUSINESS ASSET : CAPITAL EXPENDITURES : INTELLECTUAL PROPERTY
SINCE TIME BEGAN : salus populi suprema est lex - the right of the people is the supreme law : IN TRUTH WE TRUST
BREAKING DOWN Sector
Almost all economies are comprised of four, high-level sectors, which,
in turn, are each made up of smaller sectors. Of the large sectors within an
economy, the first group is called the primary sector and involves companies
that participate in the extraction and harvesting of natural products from the
earth, such as agriculture, mining and forestry. The secondary sector consists of processing,
manufacturing and construction companies. The tertiary sector is comprised of
companies that provide services, such as retailers, entertainment firms and
financial organizations. The quaternary sector includes companies in the
intellectual pursuits, such as educational businesses.
KEY TAKEAWAYS
What is a Primary Market
A primary market issues new securities on an exchange for companies, governments and other groups to obtain financing through debt-based or equity-based securities. Primary markets are facilitated by underwriting groups consisting of investment banks that set a beginning price range for a given security and oversee its sale to investors. Once the initial sale is complete, further trading is conducted on the secondary market, where the bulk of exchange trading occurs each day.What Is Underwriting Group
An underwriting group is a temporary association of investment bankers who wish to purchase a new issue of securities from an issuer in order to distribute the issue to investors at a profit. The underwriting group shares the risk and aids in the successful distribution of the new securities issue.
What is a Security
A security is a fungible, negotiable financial instrument that holds some type of monetary value. It represents an ownership position in a publicly-traded corporation (via stock), a creditor relationship with a governmental body or a corporation (represented by owning that entity's bond), or rights to ownership as represented by an option.
What is Fungibility
Fungibility is the ability of a good or asset to be interchanged with other individual goods or assets of the same type. Assets that are fungible are exchangeable for each other and simplify the exchange and trade processes, as fungibility implies equal value between the assets.
What Is Economic Value?
Economic value can be described as a measure of the benefit from a good or service to an economic agent. It is typically measured in units of currency. Another interpretation is that economic value represents the maximum amount of money an agent is willing and able to pay for a good or service. The economic value should not be confused with market value, which is the minimum amount a consumer will pay for a good or service. Thus, economic value is often greater than the market value.
What Is Asset?
An asset is a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide a future benefit. Assets are reported on a company's balance sheet and are bought or created to increase a firm's value or benefit the firm's operations.
An asset can be thought of as something that, in the future, can generate cash flow, reduce expenses, or improve sales, regardless of whether it's manufacturing equipment or a patent.
Assets are recorded on companies' balance sheets based on the concept of historical cost, which represents the original cost of the asset, adjusted for any improvements or aging.
Examples of Assets
Current Assets
Current assets are short-term economic resources that are expected to be converted into cash within one year. Current assets include cash and cash equivalents, accounts receivable, inventory, and various prepaid expenses.
While cash is easy to value, accountants periodically reassess the recoverability of inventory and accounts receivable. If there is evidence that accounts receivable might be uncollectible, it'll become impaired. Or if inventory becomes obsolete, companies may write off these assets.
Fixed Assets
Fixed assets are long-term resources, such as plants, equipment, and buildings. An adjustment for the aging of fixed assets is made based on periodic charges called depreciation, which may or may not reflect the loss of earning powers for a fixed asset.
Generally accepted accounting principles (GAAP) allow depreciation under two broad methods. The straight-line method assumes that a fixed asset loses its value in proportion to its useful life, while the accelerated method assumes that the asset loses its value faster in its first years of use.
Financial Assets
Financial assets represent investments in the assets and securities of other institutions. Financial assets include stocks, sovereign and corporate bonds, preferred equity, and other hybrid securities. Financial assets are valued depending on how the investment is categorized and the motive behind it.
Intangible Assets
Intangible assets are economic resources that have no physical presence. They include patents, trademarks, copyrights, and goodwill. Accounting for intangible assets differs depending on the type of asset, and they can be either amortized or tested for impairment each year.
- An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit.
- Assets are reported on a company's balance sheet and are bought or created to increase a firm's value or benefit the firm's operations.
- An asset can be thought of as something that, in the future, can generate cash flow, reduce expenses or improve sales, regardless of whether it's manufacturing equipment or a patent.
