What are Natural Resources?

//What are Natural Resources?
What are Natural Resources? 2017-10-06T01:17:18+00:00

Definition: Natural resources are assets that used up when they are consumed. Gas is a good example of a natural resource. In order to use the gas, it must be consumed. In contrast with a car that can be used and reused. Natural resources like gas, oil, lumber, and coal are often called wasting assets because they must be consumed in order to be used.

What Does Natural Resource Mean?

A single gallon of gas is usually not considered a natural resource that should accounted for, but an oil deposit or forest is. These natural resources must be pumped, forested, or mined out of the ground in order to be used or sold. After the resources are extracted from the ground, they can become raw materials that are refined or used to produce other products.

Example

Companies that own natural resources like forests waiting to be harvested or oil reserves waiting to be extracted, record these assets as noncurrent or long term assets on their balance sheets. All natural resources are recorded at their cost or what the company paid for them. So if BP bought an oil reserve in Texas for $500,000, it would include a $500,000 long-term asset on its balance sheet.

Just like other long-term assets, natural resources are expensed over time. Expensing a natural resource is called depletion. Depletion is recorded every year along with fixed asset depreciation and intangible asset amortization. Since you can’t actually measure an oil reserve or coal deposit, volume estimates are used to calculate the actual depletion of the year.