An accounting convention whereby an item is recognized as an asset on the balance sheet when it meets two yardsticks: (1) the definition of an asset, and (2) the asset recognition criteria. There are three criteria for asset recognition:

1. The right to use the item should be held and controlled by the reporting company.
2. This right should be a result of a past transaction or exchange.
3. The probable future benefit that would be generated by the asset should have a relevant measurement attribute that can be quantified with reasonable reliability. Reliability of a reported amount implies that the amount relates to what it purports to represent and is reasonably free from error and bias.