Definition and Examples of Assets
For accounting purposes, assets are defined as probable future economic benefits obtained or controlled by a particular entity as the result of past transactions or events.
For individuals, assets include checking and savings accounts, retirement accounts, equity in a home or other property, vehicles, and any equity a person has in a business, private or otherwise.
Business assets include cash balances, accounts receivable, inventory, investments and property, such as a plant, equipment, and motor vehicles. Intangible assets include copyrights, patents, and other intellectual property.
In a personal and business sense, assets are a key component of financial stability. Assets are reported on a company’s balance sheet, and are part of the elemental accounting equation:
Assets = Liabilities + Equity
When they are listed on a company balance sheet, assets are divided into two main categories: current assets and fixed assets. In general, you can turn a current asset into cash or cash equivalents quickly, whereas fixed assets are meant to be held for the long term.
How Assets Work
Individuals buy and sell assets, whether they are shares of stock, a home, a vehicle, or anything else, for a number of reasons. Someone may sell shares of stocks or bonds to use the money in another fashion or to reinvest in a different manner. As with companies, assets may be sold because they are losing value too.
Companies acquire assets in the course of doing business. In addition to the tangible and intangible assets mentioned above, when a company purchases another business, that becomes an asset. This can create long-term value. However, throughout history, many companies have acquired businesses only to sell or fold them later at a loss.
Individuals have a variety of ways to sell assets, whether they sell a home through a realtor, use a classifieds site to sell a car, or sell stock through a brokerage or trading app.
Current Assets vs. Fixed Assets
|Current Assets||Fixed Assets|
|Assets that are already cash or convertible to cash within one year.||Mostly tangible assets like cars and homes (personal) or machinery and buildings (business) that are not easily convertible to cash.|
|Often used in the daily operations of running a business or ready for that purpose.||Long-term physical assets that have a lifespan of more than one year.|
|Not subject to depreciation.||Subject to depreciation.|
Current assets are also called “short-term assets.” They can usually be converted to cash within one year. Examples of current assets include:
- Cash and cash equivalents
- Account receivables
- Short-term deposits
- Marketable securities
- Office supplies
Fixed assets are also called long-term assets. They cannot readily be turned into cash or cash equivalents. Examples of fixed assets include:
- Real estate
- Machinery and other equipment
Types of Assets
Assets can be categorized further for the purpose of analyzing their use and value.
Just as businesses compile a balance sheet reporting assets and liabilities, individuals or households are wise to take account of the same. Like a corporate balance sheet, a personal balance sheet uses an individual’s or household’s total assets and total liabilities to determine net worth.
Personal assets include checking and savings account balances, retirement accounts, equity in a home, vehicles, as well as any equity a person has in a small business. Liabilities include the balance due on a mortgage, credit card balances, loans, and legal judgments against you.
Tangible and Intangible
Tangible assets include real estate (such as a plant), equipment, vehicles, cash on hand, and inventory. Intangible assets include patents and copyrights, trade secrets, licenses and permits, intellectual property, and brand image.
Operating or Nonoperating
Operating assets are those used in the daily operation of a business to generate revenue (cash, inventory, a manufacturing plant). Nonoperating assets are not required for daily business operations, but may still generate revenue (investments, vacant land, and interest income from a fixed deposit, for example).
The additional classification of assets helps company leaders and analysts determine a company’s solvency and risk, as well as determining what percentage of a company’s revenues come from its core business operations.
For example, electric carmaker Tesla’s 2021 first-quarter report shows a net income of $438 million for the quarter and $10.4 billion in revenue. The sale of two assets—emissions credits and Bitcoin—added to the company’s revenue.
- Assets are any resource of value that is owned by an individual, business, or government.
- Assets are categorized as short-term (current) assets and long-term (fixed) assets.
- Current assets are already cash or more easily converted to cash than fixed assets, which usually have a lifespan of more than one year.
- When netted against liabilities and equity on a balance sheet, assets can be an indication of a company’s financial stability.