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What Are Assets in Accounting?

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Last editedNov 20203 min read

Assets are one of the most important items on your balance sheet. Whether you’re using your company’s assets to help grow revenues or you’re employing them as collateral when you take out a loan, there are a broad range of uses for assets in accounting. However, there are many different types of assets, and many people aren’t aware of the distinctions between them. Explore the definition of assets in accounting & find out about the types of assets in our comprehensive guide.

What is an asset?

So, what are assets? Essentially, an asset is any resource with financial value that is controlled by a company, country, or individual. There is a broad range of assets that your business may own, create, or benefit from, including real estate, cash, office equipment, goodwill, investments, patents, inventory, and so on. Your balance sheet lists all of your company’s assets and explains how they are financed, i.e., whether through debt, equity, or owned outright.

Understanding the different types of assets with examples

When we speak about assets in accounting, we’re generally referring to six different categories: current assets, fixed assets, tangible assets, intangible assets, operating assets, and non-operating assets. Your assets can belong to multiple categories. For example, a building is an example of a fixed, tangible asset. 

It’s important to make sure that you’re classifying your assets properly, otherwise, you could run into problems. The correct classification of fixed assets in accounting can help you to properly gauge your business’s net working capital, whereas understanding the difference between tangible and intangible assets is an important element of assessing risk and solvency.

Here’s a little more information about the different types of assets with examples:

Current assets

Current assets are assets that can be converted to cash or cash equivalents within the space of one year. They are also referred to as “liquid assets” owing to their importance for your business’s liquidity. Here are some examples of current assets:

  • Cash and cash equivalents

  • Accounts receivable

  • Marketable securities

  • Inventory

  • Short-term investments

Fixed assets

Fixed assets cannot be converted to cash or cash equivalents within the space of one fiscal year. They are also referred to as “non-current assets” or “long-term assets.” Here are some examples of fixed assets:

  • Real estate

  • Patents

  • Equipment, tools, and machinery

  • Furniture

  • Long-term investments

Tangible assets

Tangible assets are assets with some kind of physical presence. Here are some examples of tangible assets:

  • Real estate

  • Cash

  • Office supplies

  • Vehicles

  • Equipment, tools, and machinery

Intangible assets

Intangible assets are assets that aren’t physical but offer long-term value to your company. Here are some examples of intangible assets:

  • Trademarks

  • Brand recognition

  • Goodwill

  • Research and development

  • Patents

Operating assets

Operating assets are assets that enable your business to generate revenue via your core business operations. Here are some examples of operating assets:

  • Equipment, tools, and machinery

  • Cash

  • Real estate

  • Patents

  • Inventory

Non-operating assets

Non-operating assets are assets that do not help your business generate revenue via your core business operations but may still help you generate income in other ways. Here are some examples of non-operating assets:

  • Unused land

  • Marketable securities

  • Unallocated cash

  • Short-term investments

  • Spare equipment

How do different types of assets in accounting work?

Above, we’ve provided you with a guide to the different types of assets, but when it comes to the types of assets on a balance sheet, it’s a little different. Basically, when you’re recording your business’s assets in your accounts, there’s no need to categorize your assets on such a granular level. Most of the time, there are only two types of assets on a balance sheet: current assets and fixed assets.

Furthermore, intangible assets pose issues for classifying different types of assets in accounting, as it’s very difficult to assign a value to them. In any case, there’s no standardized valuation method. How do you value your business’s “brand recognition,” for example? Ultimately, if you aren’t able to accurately assign a value to an intangible asset, you cannot report it on your balance sheet.

It’s also important to note that the different types of assets in accounting are expensed in different ways. Although both processes describe similar things, depreciation is used for tangible assets (assets with a physical presence), whereas amortization is used for intangible assets. It’s essential to get this right, as depreciation and amortization can have a meaningful impact on your business’s taxable income.

Interested to find out how your company can use assets to generate sales? Take a look at how to calculate total asset turnover ratio.

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