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Sure, NK Designer, I would like to share the important key differences between Assets and Inventory. I hope this will help you in understanding and analyzing the concept better. Difference between Assets and Inventory- S.No. Basis of Difference Assets Inventory 1. Meaning Asset refers to the economiRead more
Sure, NK Designer, I would like to share the important key differences between Assets and Inventory. I hope this will help you in understanding and analyzing the concept better.
Difference between Assets and Inventory-
| S.No. | Basis of Difference | Assets | Inventory |
| 1. | Meaning | Asset refers to the economic resources that are owned or controlled by an entity or business for deriving short-term and long-term future benefit. | Inventory refers to the set of finished goods (or) raw materials used for manufacturing goods to sell them in the market. |
| 2. | Types | Assets are classified into two types namely- Fixed and Current assets. Fixed Assets are further classified into Tangible and Intangible Assets. | Inventory is classified into 3 types namely- Raw Materials, Work In Progress and Finished Goods. |
| 3. | Period/Duration | Fixed Assets are kept in the business for a longer period whereas Current Assets are kept in business for a short period but they are not meant for immediate sale. | Inventory is not kept in the business for a longer period. They are meant for immediate sale to generate revenue. |
| 4. | Scope | Assets have a broad scope because they remain in the business for both long-term (Fixed Assets) and short-term (Current Assets). | Inventory has a narrow scope because they are quickly converted into revenue by selling them. |
| 5. | Key features | i) Price (or) value. ii) Generates revenue for a longer period. iii) Maintenance cost. iv) Highly Durable. v) Subject to Depreciation. | i) High liquidity ii) Readily accessible to end-users. iii) Contributes to working capital management. iv) Creates seasonal demand. v) Economies of scale. |
| 6. | Methods of Valuation | i) Cost Method. ii) Base Stock Method. iii) Fair value Method. iv) Standard Cost Method. | i) FIFO Method. ii) LIFO Method. iii) Simple Average Method. iv) Weighted Average Method. |
| 7. | Examples | i) Plant and Machinery. ii) Furniture. iii) Bills Receivables. iv) Sundry Debtors. v) Patents and Trademarks. | i) Aluminium and steel for manufacture of utensils. ii) Flour for bakery production. iii) Crude oil for refineries. iv) Cotton for cloth production |
| 8. | Presentation | All Assets are shown in the balance sheet on the assets side as a non-current and current asset. | Inventory is shown on the credit side of the trading account and under the head current assets in the balance sheet. |
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Yes, Nancy, there are few assets which show the credit balance. Those assets generally hold zero or unfavourable balance. Assets which have a credit balance In accounting perspective assets and expenses generally have a debit balance whereas liabilities, revenue and capital have a credit balance. YeRead more
Yes, Nancy, there are few assets which show the credit balance. Those assets generally hold zero or unfavourable balance.
Assets which have a credit balance
In accounting perspective assets and expenses generally have a debit balance whereas liabilities, revenue and capital have a credit balance. Yet there exist a couple of assets which do have a credit balance those assets are known as contra assets.
Contra Asset
A contra asset is referred to an asset which generally has a zero or negative balance. Such an asset is used to offset or reduce the balance of the respective asset account with which it is paired to. Hence reducing or offsetting the amount of the respective asset account with the contra asset account gives us the net value of the respective asset.
It acts as an asset holding credit balance. Contra assets are useful for the organization because it allows them to follow the matching principle by initially recording an expense in the contra asset account.
Assets with a negative balance
For Example- Max purchased an air conditioner from eBay for 4,00,000. The salvage value of air- conditioner is 30,000 and has an expected useful life of 10 years. On 31-12-yyyy, how much balance will be shown in the Accumulated Depreciation account.
Calculation Part
Annual Depreciation = (Value of Asset – Salvage value)/Estimated life of the asset.
= (4,00,000 – 30,000)/10 => 37,000
Net Asset value = Total asset value – Accumulated Depreciation
= 4,00,000 – 1,48,000 => 2,52,000
Placement in the Balance Sheet
Here in the balance sheet “Accumulated Depreciation” shows a negative balance which is a contra asset and it is deducted from the respective asset account. Hence providing us with the Net value of the asset.
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