Earning assets are assets that generate income for the people or companies that hold them. In other words, in addition to holding inherent value, these assets also earn money for their owners. Such assets can be part of an investment plan designed to provide a steady supply of income that can be relied upon for financing activities such as retirement. There are a number of different types of earning assets and there are several different ways of viewing such assets for accounting purposes.
One definition of earning assets includes any assets that generate income without requiring additional work or investment on the part of the owner. This includes things like interest bearing accounts, securities such as stocks and bonds, and anything that pays dividends. After the initial outlay is over, the asset will begin to return funds immediately, providing a steady and secured source of income. People can opt to sell or transfer the assets, making a lump sum of income, and some types of earning assets may be subject to changing market conditions that can cause their value to rise and fall.
Other definitions also include assets such as real estate that can earn money, but also require some expenditures. Real estate requires work in the form of maintenance, although that work may be contracted out to another party. It also requires additional investment to pay for maintenance, improvement, insurance, taxes, and other expenses. These earning assets generate funds for their owners, but some effort is required to get and maintain returns. These assets are also treated as investments for their holders.
Any income earned with earning assets must be reported in tax filings. Typically, statements are sent by institutions like banks and companies that offer stocks to alert people to how much has been paid out over the course of a year so that people can file taxes accurately. For income from renting real estate and equipment, people must maintain accurate records and ensure that their declared income is accurate.
There may be some special accounting categories for certain types of earning assets. Classifying these assets differently can allow people to take advantage of deductions and other tax benefits they may find helpful. An accountant can provide more complete information on specific instances and can offer assistance with filing tax paperwork. It is important to ensure that tax paperwork is as full and complete as possible to avoid the need to refile and reduce the risk of attracting the attention of auditors.
