Working people are always looking for ways to save money. But how many of us really put some thought into investing in assets? We usually save our salaries in banks or opt for some investment. But if you put in a little research and plan well then long term assets might as well work for you.
To determine profit for a particular period it is necessary that depreciation be applied on the total value of the asset. Here the matching principle comes into play. According to this principle the expenses should match with the revenue they generate. Since assets generate revenue, a part of it must be expensed.
Also all assets might not provide the revenue the same way. For example a building will generate more revenue than an air conditioner. Therefore as all assets have different life spans, the costs too would be different.
The balance sheet determines the health of a company. Assets, liabilities and equity are three parts of a balance sheet. Equity of the firm provides an insight into the workings of the company. In the balance sheet assets are broken down into current and long term. Assets are considered investment by the company even though the long term assets are not immediately liquid.
So all in all long term assets acts as a backup for companies because when the need arises, one can liquidate the long term assets for immediate cash. If depreciation is kept in check the long term assets are powerful assets that give a huge profit down the years.