Assets Recognition Criteria
Assets are the resources that expect to provide benefits to the company. They are recorded on the company balance sheet.
The assets on the balance sheet include cash, accounts receivable, inventor, fixed assets, and other assets. The company own and control these kinds of assets as they are recorded on the balance sheet.
The company purchase variety of items to support its operations. They spend the cash and receive the items based on the purchase agreement. The accountant has the obligation to record such kind of purchase transaction. The items received can be the assets that need to record on the balance sheet or they may be the expense on the income statement.
Besides purchasing, the company may acquire the assets through construction and other methods.
Criteria to Record Assets on Balance Sheet
The company can record the assets on the balance sheet if the items meet the following criteria:
The company is expected to generate future economic benefits from the assets. The benefit can be the ability to use the assets to support the operation or the ability to sell for revenue.
The assets will reduce their value as the economic benefit decrease. The fixed assets will be charged to depreciation expense by the time company consume assets’ benefits.
The same items will be reclassed to expenses if they are not able to generate benefits for the company. For example, if the assets are broken down or lost, they have to record them as expenses immediately.
The company can record assets in the report as long as they own the assets. They cannot record the assets which do not belong to them.
They receive the assets through purchasing or construction. There is enough evidence to support the purchasing transactions.
The ownership also represents that company is able to take full benefit from the assets in the future.
The cost measure reliable
In order to record the assets, the company must know the cost of the assets.
The cost of assets is a reliable measure of how much a company has invested in its property, plant, and equipment. It can be the price that the company pays to the supplier. It is also the construction cost that company spends to build the assets. This cost must be measured reliable by the time that assets are ready to use.
The assets require the company to keep track which is costly and complicated. The company has to balance the cost and benefit from recording the items as assets on balance sheet.
If the cost of items is very small, it will not be necessary to record them as assets and transfer them to expenses in the future. The company can record it as an expense directly.
The company can set the capitalization threshold for the assets on the balance sheet. Any items cost below, the threshold will become an expense automatically.