From the course: Financial Accounting Part 1

Assets: Planes, trains, and automobiles

From the course: Financial Accounting Part 1

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Assets: Planes, trains, and automobiles

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- [Instructor 1] So, what are assets? We kind of have an intuitive sense of this. A formal definition is that assets are resources owned or controlled by a company that will provide probable future benefit. - [Instructor 2] Let's take the simplest example. If you look at the balance sheet of Apple you see they've got lots of cash, billions of dollars of cash. Is that a resource that will provide probable future benefit? Yeah, cash is a good asset. But cash is not the only asset. If you're a financial institution such as Wells Fargo Bank or Bank of America, your biggest asset is an asset we call accounts receivable, or loans receivable. These receivables represent the expectation that you're going to collect money from people in the future based on contracts that exist in place right now. - Now, can a contract, a piece of paper really be an asset? If I have a piece of paper that somebody has signed where they promised to pay me $10,000 in the future, is that a valuable thing? Is that an asset? Sure it is. - The primary asset of any bank is accounts or loans receivable. Citibank has over a trillion dollars in accounts or loans receivable. That's trillion with a T. Huge asset. This asset represents money that Citibank expects to collect in the future from the people who have borrowed it from them in the first place. - How 'about Walmart? Let's do a little field trip in our minds to a Walmart location. Now, close your eyes, drive into the Walmart parking lot and get out of your car. Now you're walking across the parking lot. You're walking on one of Walmart's assets. The land is a Walmart asset. - Now you walk into the building. The building is another Walmart asset. - [Instructor 1] Stand in the middle of the store and look around at all the stuff on the shelves. That's called inventory, the stuff that you can buy from Walmart. Inventory is an important asset for Walmart. - Land, building, inventory, those are all very important assets for Walmart. - [Instructor 1] For United Airlines or Delta Airlines, important assets are the airplanes. - For Disney, important assets are the theme parks. - Assets are resources owned or controlled by a company that provide probable future benefit. - Another way to view this is that assets are the things that the company uses to provide services to its customers so that their customers will pay them. These are assets.

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