Main menu

Pages

What Is an Asset? Definition & Types

Asset can be both tangible and intangible. Examples are machinery, buildings, patents, and stocks. Generally expected to generate income or provide advantages in the long term but only sometimes short term. 


What Is an Asset

What Is an Asset?

An asset is any valuable resource that a person or company owns. Assets are reported on some public records and are often bought with the intention of providing future benefits. An asset can be thought of as something that, in the future, can generate cash flow, reduce expenses, or improve sales, regardless of whether it's manufacturing equipment or a patent.


Examples of assets are -

1. Cash

2. Investments

3. Inventory

4. Office equipment

6. Machinery

7. Real estate

8. Company-owned vehicles


How Assets Work

It's important to keep track of your assets, whether it be for your business or personal use. It can also help you protect yourself and others. There are a number of benefits to this including having an inventory of what you have and knowing how to handle issues if something goes wrong. In addition, lenders may take many of your assets into consideration when deciding to approve a loan, and they may even be used as collateral.


Determining the value of assets beyond cash and cash equivalents usually needs to be done by a professional appraiser. There are two common ways of determining the value of assets: the cost method and the market value method.


The cost method of valuing an asset is simple, as it relies on its original purchase price. It can be less accurate than the market valuation method, because the market valuation method can change depending on the price of other assets.This method bases the value on the price an asset would sell for in the open market.


6 Types of Assets

1. Current assets: Current assets are highly liquid assets that can be quickly sold and converted into currency. Financial assets like cash, bonds, mutual funds, stocks, and other marketable securities are considered the most liquid current assets—meaning that an asset can be sold easily and quickly without affecting its price. Current assets for businesses can include cash, accounts receivable, inventory, and prepaid expenses.


2. Fixed assets: Fixed assets, also referred to as hard assets or long-term assets, may take a long time to earn cash value and are generally considered low-liquidity, meaning that they often cannot quickly be sold at their desired value. Some examples of fixed assets include buildings, land, furniture, or any other type of asset that is not intended for sale within the year.


3.Tangible assets: Tangible assets are real property—like inventory, real estate, machinery, cash, or furniture—that are physically tangible, and are often in the owner’s possession. Most tangible assets are also considered current assets.


4. Intangible assets: Intangible assets are items or goods that exist theoretically rather than physically. Some examples of intangible assets include permits, intellectual property, patents, brand reputation, and trademarks, which in turn have their value boosted through successful use


5. Operating assets: Operating assets are any assets that generate revenue through day-to-day business operations and help maintain workflow. Some examples of operating assets are copyrights, licenses, inventory, or machinery.


6. Non-operating assets: Non-operating assets are business-owned items that generate revenue but are not necessarily needed for everyday operations, such as vacant land or short-term investments.


Current Assets vs. Fixed Assets


Current Assets

Assets that are already cash or convertible to cash within one year.

Often used in the daily operations of running a business or ready for that purpose.

Not subject to depreciation.


Fixed Assets

Mostly tangible assets like cars and homes (personal) or machinery and buildings (business) that are not easily convertible to cash.

Long-term physical assets that have a lifespan of more than one year.

Subject to depreciation.


How Do I Know If Something Is an Asset?

An asset is something that provides a current, future, or potential economic benefit for an individual or other entity. Assets can be tangible (like a couch) or intangible (like loyalty points). If somebody owes you money, that loan is also an asset because you are owed that amount (even though the loan is a liability for the one paying you back).


Comments