Counting What You Own
Assets are resources the firm controls with expected future benefit. Accounting's job is to measure them honestly — which is harder than it sounds, because "value" depends on the question.
Current assets cycle within the operating period:
- Cash and equivalents — the most liquid; measured at face value.
- Accounts receivable — what customers owe. Carried at the amount expected to be collected, minus an allowance for doubtful debts (the estimate of invoices that won't be paid). Overstating receivables overstates both assets and profit.
- Inventory — measured at the lower of cost or net realizable value (NRV). If market value drops below cost, write it down immediately — the conservatism principle says anticipate losses but never anticipate gains.
Non-current assets serve for years:
- PP&E — property, plant, equipment. Recorded at historical cost, then depreciated over useful life.
- Intangible assets — patents, trademarks, goodwill. Amortized if they have a finite life; tested annually for impairment if they don't (goodwill is never amortized under IFRS — it is tested for impairment instead).
Depreciation is not about measuring market-value decline — it is about cost allocation: spreading the asset's cost over the periods that benefit from it.
Straight-line charges the same amount each year — simple and stable. Declining balance (reducing balance) charges more in early years, less later — matching assets that lose productivity faster when young.
Net book value . It is an accounting residual, not a market price — a machine with zero book value can still be running perfectly. The balance sheet tells you what was spent and how much has been allocated, not what the asset would fetch today.
Measurement rules by asset
| Asset | Carried at |
|---|---|
| Cash | Face value |
| Receivables | Expected collection (minus doubtful-debt allowance) |
| Inventory | Lower of cost or net realizable value |
| PP&E | Cost minus accumulated depreciation |
Tip: Notice the asymmetry — conservatism recognizes probable losses immediately (write inventory down) but defers gains until realized (never write it up above cost). The books deliberately lean pessimistic, so surprises tend to be pleasant ones.