What Are Financial Assets? | Definition

A financial asset is a security that offers its owner income or a capital gain in a financial market. There are many kinds, some very simple like stocks or bonds and others much more complex like options, swaps, etc.

What Are Financial Assets? | Definition
What Are Financial Assets? | Definition

A financial asset, what is it?

The term financial asset refers to an intangible asset of a monetary nature. By definition, it cannot be touched. Typically, property is characterized by a title or contract that produces income or a capital gain for its owner. Financial assets are therefore considered investments.

In accounting, the term is used to refer to both securities and financial fixed assets. The first correspond to assets that are intended to be sold within the same fiscal year. Fixed assets, on the other hand, as their name suggests, are kept for more than one fiscal year.

The accounting treatment of assets therefore differs depending on the company's asset management policy, whether it wishes to keep them on a long-term basis or not.

Assets can thus take various forms:

  • Options,
  • swaps,
  • credit derivatives,
  • Shares,
  • Obligations,
  • And also, shares.

What are they for?

Financial assets are used as supporting tools for the financial analysis of companies. They can therefore be used to gauge various accounting and financial aspects of companies:

  • The calculation of ratios within the balance sheet,
  • Verification of financial balances,
  • Valuation of fixed assets of a company, etc.

How to assess the value of a financial asset?

A financial asset should always be valued at its acquisition cost. Added to this are the acquisition costs, among which various charges are taken into account:

  • transfer taxes,
  • fees,
  • legal fees...

Thus, the valuation of an asset can be summarized with the following calculation formula:

Acquisition cost of a financial asset = purchase price of the securities + costs of acquiring the securities

Financial assets, unlike tangible and intangible fixed assets, are not depreciable. Similarly, any related borrowing costs cannot be incorporated into the acquisition cost. The value can change in only one rare case: if under certain conditions the asset were to be subject to depreciation.

How to treat them in the balance sheet?

Financial assets comprising two different categories of values, they are therefore treated in two different accounts of the accounting balance sheet. Marketable securities, being more liquid, are classified in class 5 accounts: “Financial accounts”.

Financial assets are classified in class 2 accounts: “asset accounts”; and more particularly, within accounts 26 and 27. As part of the least liquid assets, these assets therefore appear at the very top of the balance sheet.

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