Assets

What occurs with the income flow if a company buys their own land and offices instead of renting them? Or what occurs in cases in which the company is the owner of their own capital instead of having to ask for a loan in order to buy it? In cases in which a company is already the owner of these types of resources, they no longer need to pay a fixed amount of money in order to obtain a flow of services. However, are their expenses still the same as their income?

Not to worry, the expenses are the same as the income. However, we need to look into to be able to see how. The key for these types of specialized juggling has to do with understanding what an asset is.

An asset is something durable that is not directly consumed, but that rather provides a flow of services that you consume. An example of this can be a house for example; a house would be an asset because it gives you a service, which is a place you can live in. You do not consume the house but rather the services it provides to you. A car is also an example of an asset because you do not directly consume the car in itself, but the car provides you with a means of transportation.

Often times, a person has the possibility of being able to choose between buying an asset and becoming the owner of all the future services that it will provide, or allow someone else to be the owner of the asset and sales them the services as they are produced. For example, a person can buy a house and get pleasure from all the services that it will provide as housing in the future, or the house can be put up for rent and those same services can pay for them every month. Due to this reason an asset is considered an existence, while the services that it provides are considered flow.

When a company is owner of the assets, the accountants give a monetary value to the services that these assets provide, based on what these same services would have cost the company if they had taken the building for rent. They can divide the total income of the company, and one part can be revenues, another part can be called interests, and another benefits, as if the owners of the company were obtaining three types of cash flow.

Since the owners of the company provide the money to buy the assets, a part of their income is compensation for providing these goods and services and the rest of their income is accounted as compensation for providing the business factor and assuming the risk. As a consequence, all of the money that is spent on goods and services is cash flow for someone for providing land, work, capital or business factors. This type of methodology allows economists to continue saying that the income is the same as the expenses, even when the companies are owners of their own assets.

Beginner Money Investing Cash Flow and Assets Assets Following the Funds