Resources vs. Assets

Question

I read an excerpt on Quora from the book, "Rich Dad, Poor Dad":

If you want to be rich you must know the difference between an asset and a liability and you must buy assets. This may sound absurdly simple, but most people have no idea how profound this rule is. Most people struggle financially because they do not know the difference between an asset and a liability. “Rich people acquire assets. The poor and middle class acquire liabilities that they think are assets.

So, I surf the web, videos, and articles, and the following definition is representative of what I now think an asset:

• Assets are things (either tangible or intangible) that generate future economic benefits either directly or indirectly and are obtained and controlled by a particular entity (maybe a company, government, etc.). By future economic benefits, I mean they have the potential to either increase cash inflow or decrease cash outflow, or both (either directly or indirectly).

Now, "directly or indirectly" is key here. I mentioned these terms in the definition because I noticed that there are things generally considered assets that don't directly affect cash flow. For instance: Cash. Cash is an asset as it represents a store of value that can readily be converted into other assets, say inventory, which can generate economic benefits. So, cash indirectly generates future economic benefits (specifically in this example, increases cash inflow).

• Resources, in economics, are factors of production: land (natural resources), labor (human resources), capital (things to produce other things or to provide services), and management (ability to organize and manage these resources). Note two things: I define resources as economics jargon, i.e., what it means in economics. Secondly, in economics, capital is typically not viewed in a financial sense as I defined it here.

My confusion: I always think of resources as factors of production, but I recently enrolled in an accounting course. There, I noticed, every one was comfortable using assets and resources interchangeably. Does the term "resources" have broader scope of meaning in finance and accounting? I surfed the internet to understand the nuance between these two terms, and on Quora I found someone saying, "Assets are a subset of resources". This statement brings me here.

P.S. The mentioned definition of "asset" is not referenced from any site or book. It's entirely based on what I think of what an asset is. So, if the definition has some loopholes no one is to blame but me. Great day, Users!

Answer 1

An asset is a well defined term in accounting standards. The definition you have referenced is close to the International Financial Reporting Standard's (IFRS), a widely accepted accounting standard.

As for resource, it is not a defined accounting term per se. In finance it can be used to mean anything you can use to get to your means I would imagine. In theory, you may be able to leverage some "resources" that you do not have legal power over but may influence in such a way that you can use them. In practice the nuance may not be very useful in most of cases.

Answer 2

The book does not use the accounting definitions of these terms, which is part of the confusion.

The context used in the book is distinguishing between things that make (or save) money, or provide utility, as assets versus things that cost more money as liabilities. Certainly a house is an asset as it provides a place to live without having to pay rent. Or you can rent it out to someone else and actually make money off of it.

A car is an asset only to the point at which is in necessary for transportation. After that, it cost money in excess purchase cost, maintenance, insurance, etc.

The point the book is trying to make is spend as little on "liabilities" as possible, and focus more on "assets" to build wealth. So it recommends to buy cheap cars instead of fancy ones, buy only as much house as you need to have shelter, etc.