Definition and Examples of Assets
How Assets Work
Current Assets vs. Fixed Assets
Types of Assets
Definition and Examples of Assets
An asset is any resource of value, whether tangible or intangible, owned by an individual, company, or government with the expectation that it will provide economic benefit.
Assets are considered valuable resources owned by an individual, company, or government. They are classified into short-term (current) assets and long-term (fixed) assets. Current assets are assets that are cash or can be easily converted into cash, whereas fixed assets typically have a longer lifespan of more than one year. When assets are deducted from liabilities and equity on the balance sheet, they can be an indicator of the company’s financial stability.
How Assets Work
Individuals and companies purchase assets, whether stocks, a home, a car, or anything else, for several reasons. A person might sell stocks or bonds to use the money in another way or to reinvest it differently. Assets can also be sold because they are losing value.
Companies acquire assets in the context of doing business. In addition to the tangible and intangible assets mentioned above, when a company purchases another company, that business becomes an asset. This can create long-term value. However, throughout history, many companies have acquired other businesses only to sell them or close them later at a loss.
Current Assets vs. Fixed Assets
Current assets are those that are cash or can be converted into cash within one year. Examples of current assets include: cash and cash equivalents, short-term deposits, inventory, marketable securities, and office supplies.
Fixed assets are long-term assets. They cannot be easily converted to cash or cash equivalents. Examples of fixed assets include: real estate, vehicles, and other machinery and equipment.
Types of Assets
Assets can be classified into other subcategories for analysis of their usage and value.
Personal Assets: Personal assets include checking accounts, savings accounts, retirement accounts, equity in a home, vehicles, and any equity a person has in a small business. Liabilities include the outstanding mortgage balance, credit card balances, loans, and any legal judgments against the individual.
Tangible and Intangible Assets: Tangible assets include real estate, equipment, vehicles, available cash, and inventory. Intangible assets include patents, copyrights, trade secrets, licenses, permits, intellectual property, and brand equity.
Operating and Non-operating Assets: Operating assets are those used in the daily operations of a business to generate revenue, such as cash, inventory, and manufacturing plants. Non-operating assets are not required for daily business operations but may still generate revenue, such as investments, vacant land, and interest income from a fixed deposit, for example.
Additional classifications of assets help business leaders and analysts determine a company’s solvency, assess risks, and gauge the percentage of revenue coming from the company’s core business operations.
For example, in Tesla’s first-quarter report of 2021, the electric vehicle manufacturer reported a net income of $438 million for the quarter and total revenue of $10.4 billion. The sale of two assets – emission credits and Bitcoin – contributed to the company’s revenue.
Source: https://www.thebalancemoney.com/what-is-an-asset-5192781
Leave a Reply