An asset is anything a business owns that has measurable value. Assets can be physical items such as equipment and inventory or nonphysical items such as patents and trademarks. An asset must be owned or controlled by the business and provide economic benefit now or later.
Assets come in different shapes and forms, and accountants categorize them to facilitate financial tracking and reporting. Here are the main types:
- Current assets: These are assets a business expects to spend or convert into cash within a year. Think of them as short-term resources. Examples include cash, accounts receivable, and inventory.
- Non-current assets: These are long-term or “fixed” resources your business uses over time to generate revenue. You cannot easily convert them into cash. Examples include machinery, buildings, and land.
- Intangible assets: These are the nonphysical assets that still hold value. Intangible assets are harder to evaluate, but they can be just as important as physical assets, especially in industries such as tech and entertainment. Examples include trademarks, patents, and other intellectual property (IP).
- Financial investments: Businesses sometimes put their cash into other investments. These count as assets because they’re expected to bring in financial returns later. Examples include stocks, bonds, and mutual funds.
How are assets classified on a balance sheet?
The balance sheet lists and accounts for all your assets and groups them by liquidity (i.e., how quickly they can be turned into cash). Here’s how they’re grouped:
- Current assets: The most liquid assets (such as cash and accounts receivable) are at the top of the balance sheet.
- Non-current assets: Below the current assets are the less liquid ones, such as property, equipment, and trademarks. These take longer to sell or convert to cash but are necessary for running the business.
What is the difference between tangible and intangible assets?
Tangible assets are physical items; they’re easy to identify and evaluate. These include:
- Computers
- Office furniture
- Company cars
- Inventory
- Buildings
Intangible assets lack physical form but still hold economic value. Examples include:
- A recognizable brand name
- Copyrights for original content
- Licensing agreements
- Trade secrets
Though you can’t physically hold these assets, they often play a big role in a business’s success. For instance, the value of a globally recognized brand such as Coca-Cola extends far beyond its physical factories and inventory.