The term asset refers to various types of financial instruments that a company possesses, whether in the form of land, buildings or other property or cash or other tangible assets. Assets, on the other hand, refer to money that may be in the form of savings accounts, securities, accounts receivable and inventory. The two primary types of assets are fixed assets and variable assets.
The two primary types of assets, known as current assets, are accounts receivable and accounts payable. These categories are commonly classified into two major categories: fixed assets and financial assets. These classifications are widely used to classify fixed assets into various categories on the balance sheet so that one may discern the relative liquidity in the assets of a company. On the other hand, the current type of asset referred to as non-financial assets are classified into three major categories; tangible assets, intangible assets, and leasehold improvements.
Fixed assets include tangible assets which are not related to the firm’s income. It comprises of fixed assets like inventories and plant. Other fixed assets include the cost of goods sold, raw materials, machinery, and fixed assets owned by the firm. Some examples of fixed assets include the buildings, machinery, furniture, and equipment of a firm. However, the types of fixed assets do not include the capital stock of a firm, as these are considered as non-financial assets by the accounting standards.
Variable assets include non-financial assets such as stock and bonds, receivables from customers, goodwill, and property located outside the territory of the firm. Non-financial assets, unlike fixed assets, can fluctuate in value; thus, they are termed as non-custodial assets.
As a firm’s financial status changes over time, it is required to make adjustments to the accounts and cash flow of its assets, liabilities, and equity. This process is called asset impairments. A firm that has a steady influx of cash and can easily fund its investment needs can also incur assets which have a low degree of risk, thereby minimizing the need for the need to incur more assets, while assets with higher risks are depreciated.
The type of firm’s assets is the first and most important step in determining the value of its assets. Some factors that determine the value of the firm’s assets include its marketability, liquidity, return on invested capital, financial structure, and tax considerations.
Financial markets include three main financial markets, namely financial trading, foreign exchange, securities trading, and money markets. Financial trading involves the buying and selling of financial instruments on the financial market. These financial markets are usually characterized by a high level of volatility, with trading volume that increases as prices increase. The foreign exchange market mainly involves the purchase and sale of currencies. Other financial markets include the stock and bond market.
Financial trading includes securities trading, wherein traders enter into contracts on securities that are traded in the stock exchange. Securities such as stocks, futures, options, swaps, options, commodities, futures, currencies, and indexes are commonly traded. Money markets involve buying and selling of securities in the banking system.
The purpose of all types of financial instruments is to create an exchange of securities or cash for other financial instruments, such as bank loans. The difference between these two financial instruments is that financial instruments are not used to create the production of goods and services by a firm. They are primarily used to generate the exchange of securities for other financial assets of the firm. Thus, when a firm wishes to borrow funds, it uses fixed assets for the same.
Fixed assets include the capital stock of a firm, buildings, inventory, inventories, patents, and machinery, all of which are used to create financial instruments. and can be of various types. In addition, fixed assets also include income from the operations of a firm, whether or not it earns interest, rents, profits, or revenue. It also includes the tangible assets of the firm, which may include land, buildings, and inventories, which are used in producing the tangible assets.
The market for financial assets is a constantly changing process that can be affected by many external factors. These factors, however, include inflation, interest rates, the value of currencies, and the value of government debt and obligations, among others. Therefore, when a firm decides to purchase any of its assets, it will either require the payment of an additional cost in order to buy it or purchase at the current market price; this is known as the purchase price.
Financial instruments are the difference between the cost of using assets and its value. A company’s financial resources, whether it is a firm or an individual, must meet the cost of using them in order to meet its liabilities, income, and other expenses, as well as meet its demands for funds. Thus, the value of an asset, that is, its market value, determines the amount of the purchase price and, depending on these costs, the market price of that asset.