Recognition of Assets

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Most assets are recognized at time of purchase and reception.
Most assets are recognized at time of purchase and reception. (Image: Jupiterimages/BananaStock/Getty Images)

Recognition in accounting means to record a transaction on the accounts in acknowledgment of its existence. For example, recognizing a purchased vehicle means recording its existence as an asset account and the amount paid out for it as an expense. Rules and regulations exist in accounting in regard to when and how assets should be recognized on a business's financial statements, with variations based on the nature and origin of the asset in question.

Tangible Assets

Most assets, both current and long-term, are counted as tangible assets or assets possessing material existence. Examples of tangible assets include the current asset of cash and the long-term assets of plant and equipment. Certain assets that do not possess material existence at present but will do so in the future, such as accounts receivable, are also counted as tangible assets.

Recognition of Tangible Assets

In general, tangible assets are recognized on a business's accounts when the benefits and responsibilities of their ownership are transferred to the business. For most tangible assets, this moment comes at the time of the sale, while larger items might wait to be recognized until their delivery to the business. For tangible assets whose values will be received at a later time, such as accounts receivable, their recognition comes at the time that they are earned.

Intangible Assets

Intangible assets are assets without material existence. Examples of intangible assets include both patents and copyrights. Some intangible assets are acquired through the same means as tangible assets, while others are what is called a capitalized expenditure. Capitalized expenditures are single-period expenditures recorded as an asset in order to reflect their usefulness in producing revenues across multiple time periods. For example, research costs incurred in creating a patent would result in those costs being recognized under a patent asset account.

Recognition of Intangible Assets

Intangible assets acquired through the most common methods, such as purchase or trade, are recognized when the benefits and responsibilities of their ownership transfer to the business, much the same as their tangible counterparts. Capitalized expenditures are only recognized as assets when their occurrence helps produce revenue across multiple time periods. For example, repair costs are not capitalized, but rather recorded as expenses in the time period incurred, while costs that increased an asset's usefulness and useful lifespan can and should be added to that asset's value.

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