Luxury Bed Ensembles Are Assets of Bed Linens Manufacturing Company
What are assets of a business in the accounting sense of the word? To qualify as an asset of a business in the accounting sense of the word, a property must be owned by that business.
Therefore if Bed Linens Manufacturing Company leases a delivery truck from Quilts & Shams Enterprises, which owns a fleet of such trucks, the rented equipment would not be an LINENS & HUTCH asset of Bed Linens Company and would be an asset of Quilts & Shams Enterprises.
A lease is an agreement under which the owner of property permits someone to use it. Thus families who live in an apartment house ordinarily lease their apartments from the owner of the apartment house. Similarly, a weaving machine on lease would not be an asset of the company borrowing it.
All assets must be owned. Also, it must be of value to the business, either because it will be converted into cash, or because it is expected to benefit future operations. The right to collect moneys owed by customers to the business and current inventory of luxury bed ensembles and sheet sets would qualify as assets.
A final requirement as an asset is that the property or property right must have been purchased at a measurable cost. Thus, if Bed Linens Manufacturing Company gradually acquires an excellent reputation because of the consistently high quality of its goods and services, this reputation would not be an asset in the accounting sense of the word.
However, if a company pays a specific amount of money to acquire a reputation, as when it purchases another business to acquire its good name, then the reputation would be classified as an asset in the accounting sense of the word.
Bed Linens Manufacturing Company has operated a bed linens showroom at the same location for twenty years. During that period, it has developed a growing number of steady customers because of its reputation of good quality and services at fair prices. The value of this reputation is not an asset in the accounting sense of the word.