What is an asset?

What is an asset?

• A. A present economic resource controlled by the entity as a result of past events.
• B. A right to receive cash in the future.
• C. A liability to transfer resources.
• D. An increase in equity.

Answer: (A)

An asset is a present economic resource controlled by the entity as a result of past events, from which future economic benefits are expected to flow to the entity. In other words, you have something now that the business can use or convert into cash, and this right or resource arose from past transactions or events. The emphasis is on being a present resource, under the entity’s control, and capable of bringing future benefits. The option describing a right to receive cash in the future points to a specific type of asset (a financial asset) but misses the broader definition’s emphasis on a present resource that is controlled and originates from past events. The other choices describe a liability (an obligation to transfer resources) and an increase in equity (owner’s claim), neither of which are assets.

An asset is a present economic resource controlled by the entity as a result of past events, from which future economic benefits are expected to flow to the entity. In other words, you have something now that the business can use or convert into cash, and this right or resource arose from past transactions or events. The emphasis is on being a present resource, under the entity’s control, and capable of bringing future benefits.

The option describing a right to receive cash in the future points to a specific type of asset (a financial asset) but misses the broader definition’s emphasis on a present resource that is controlled and originates from past events. The other choices describe a liability (an obligation to transfer resources) and an increase in equity (owner’s claim), neither of which are assets.