In financial reporting, what is defined as a 'financial asset'?

A financial asset is defined as an asset that includes cash, equity instruments, and contractual rights to receive cash or another financial asset from another entity. This definition encompasses a range of items that provide economic benefits through contractual or marketplace value.

Cash is considered the most liquid financial asset, while equity instruments refer to stocks or shares that an entity may hold as investments in other companies. Contractual rights can involve any agreements or contracts that allow the entity to receive cash flows—something as straightforward as a loan receivable.

The other options illustrate different kinds of assets. Physical assets, such as property or equipment, are classified as tangible assets and not financial assets. Cash reserves are indeed a financial asset, but they represent just a subset of what qualifies as a financial asset. Similarly, intellectual property, while valuable, falls under intangible assets rather than the category of financial assets. Therefore, option C appropriately encompasses the full definition of financial assets according to accounting standards and financial reporting practices.