What Are Assets? Definition, Types, And Example

Assets have an economical value that can generate revenue or be converted into cash whenever needed. You must have heard about assets many times around. Through this article, we will dig more about assets and their important classifications.

Table of Contents

What are Assets?

Assets are the resources, such as inventory, property, patents, trademarks, etc which are owned by individuals, businesses or corporations have economic value, and can generate future benefits. Owners of these assets can convert them into cash. In businesses, assets can also help to generate revenue and help in making a profit.

Assets can be classified as fixed, current, financial, tangible, and more. They can be brought up or sold to generate value or increase the business’s operations.

For example: Shivam owns several land plots which can be considered an asset because he can sell these lands to generate revenues, make buildings, rent them, lease them, and much more. There are many options by which Shivam can use these land plots to generate revenue.

Assets: Key Highlights

Assets are resources having economical value owned by individuals, businesses, or countries.
An asset can be property, inventory, patents, trademarks, etc.
Assets are represented on the balance sheet.
An asset can be used to generate cash and generate revenues.
Assets are classified as Current, fixed, intangible, financial, and more.
An asset can be sold or bought to increase value of an organization.

Types of Assets

Assets can be classified into major categories based on several different factors. Some of the categories are mentioned below.

1. Current Asset

Current assets are short-term resources that are expected to be frequently used within one year or converted into cash. It may include cash, stock inventory, prepaid expenses, accounts receivable, marketable securities, etc. It is an important factor for the company as it allows them to use the money regularly and clear the expenses.

There are several types of current types mentioned below.

Inventory
Cash or Cash equivalent
Ongoing Project
Inventory
Pre-paid expenses
Account receivable
Marketable securities

It can be used to clear existing or regular payments and withstanding bills.

2. Fixed Asset

These assets are generally maintained for a long time and are not frequently converted into cash or equivalents such as buildings, equipment, factories, machinery, vehicles, land, etc. It is also known as long-lived assets as they are not easily converted into cash.

For example, if a company makes a parking lot space then it can be considered as a fixed asset, car can also be regarded as a fixed asset. There are two major types of Fixed assets which are tangible and intangible assets. We will know about them in this article below.

3. Tangible Assets

These assets are resources or physical substances having physical existence that can be touched or felt. It includes both current assets such as inventory and fixed assets such as buildings, machinery, land, etc. For example, lands, machinery, inventory, buildings, etc.

Tangible assets are types of fixed assets and also consist of current assets. Some of the key highlights of tangible assets are mentioned below.

These assets have physical existence and value.
They are depreciated over time which means their value decreases with time.
They can be used as collateral to get loan approvals.
Also, they can be used in day to day activities in a business.

4. Intangible Assets

These assets do not exist in physical form but hold economic values such as brand value and recognition, goodwill, intellectual property, copyrights, trademarks, etc are examples of intangible assets. Some of the key features of intangible assets are mentioned below.

They do not have any physical existence.
They are not generally depreciated with time.
It creates the future value of a firm or organization.
They are difficult to trade and are more risky when compared to tangible assets.

Current Assets Vs. Fixed Assets

Some major differences between current and fixed assets are mentioned in the table below.

Difference between Current and Fixed assets
Current Assets	Fixed Assets
Current assets are short-term resources that are expected to be frequently used within one year or converted into cash.	These assets are generally maintained for a long time and are not frequently converted into cash or equivalents such as buildings, equipment, factories, machinery, vehicles, land, etc.
It is easy to convert into cash.	It cannot be converted into cash easily.
Short-term funds are used in current assets.	Fixed assets consist of long-term funds.
The holding period for current assets is less than a year.	The holding period is more than a year.
It generates floating charges.	It includes assets such as
It may include cash, stock inventory, prepaid expenses, accounts receivable, marketable securities, etc.	It includes assets such as buildings, equipment, factories, machinery, vehicles, land, etc.

Tangible Assets Vs. Intangible Assets

Let us check some major differences between tangible and intangible assets in the table below.

Difference between Current and Fixed assets
Tangible Assets	Intangible Assets
These assets are resources or physical substances having physical existence that can be touched or felt.	These assets do not exist in physical form but hold economic value.
Tangible assets have physical existence.	It does not have a physical existence.
It is difficult to convert tangible assets into cash.	It is comparatively easy to convert intangible assets into cash.
It is easier to liquidate or sell a tangible asset as they have a physical existence.	Intangible assets are difficult to liquidate in the market as they do not have any physical existence.
They are less risky but lose their value with time.	They are more risky but do not lose their value with time.
They are easier to trade.	They are difficult to trade compared to tangible assets.
It includes buildings, machinery, land, etc. For example, lands, machinery, inventory, buildings, etc.	Brand value and recognition, goodwill, intellectual property, copyrights, trademarks, etc are examples of intangible assets.

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Assets FAQs

What are Assets?

Assets are the resources, such as inventory, property, patents, trademarks, etc which are owned by individuals, businesses or corporations have economic value, and can generate future benefits.