- Assets include anything that has intrinsic value and provides an economic benefit.
- There are six main types of assets: current, fixed, tangible, intangible, operating and non-operating.
- Assets are different from liabilities, as assets generate value, whereas liabilities are items or amounts you owe to other parties.
Assets offer value to a person or business in many different ways, depending on the type of asset. For instance, personal assets and business assets can both offer cash value or more intangible worth, instead. Both, however, are valuable. There are also several different types of asset classifications, all of which can provide economic benefit.
Although the definition of an asset is relatively simple, there's a lot to know about them, including how they work and are classified. We’ll cover the basics of assets, plus go through several different examples, so you can be confident that you know what assets are in both personal finance and business finance.
Asset definition
What are assets? An asset is anything that has intrinsic value and provides an economic benefit for you or another entity. This is a broad categorization, as assets have different values depending on their worth and type. Regardless, more assets create more value.
For individuals, assets factor into the calculation of net worth. The more assets a person has, the higher their net worth, regardless of the type of assets they are. People can track their assets through various sources, such as a wealth manager, or by reviewing their personal portfolios.
For businesses, assets appear on the balance sheet to indicate the worth and financial standing of a company, as well as how the value of assets factor into the worth of a business. The more assets a company owns, the higher its value.
What are considered assets? Classifying types of assets
Anything that can generate value and be converted to cash is considered an asset.
Below, we'll cover the six main types of assets:
- Current assets
- Fixed assets
- Tangible assets
- Intangible assets
- Operating assets
- Non-operating assets
These assets generally fall under three asset class categories: convertibility, physical existence and usage. Many assets will often fall under multiple asset classes.
What is an asset class?
An asset class is a group of assets that share similar properties, characteristics or financial structures. They generally perform comparably in the market and are governed by similar laws, rules and regulations.
Asset classification: Convertibility
Convertibility is a way of classifying assets depending on how easily they convert to cash. Current assets and fixed assets are two classifications. Current assets are easier to convert to cash than fixed assets.
Current assets
Current assets (also known as short-term assets or liquid assets) are those that you plan to either use or sell within a year’s time. This means they’re more liquid than fixed assets and are therefore easier to convert to cash.
Examples of current assets include:
- Cash or cash equivalents
- Money in immediately accessible bank accounts (such as checking or savings accounts)
- Accounts receivables
- Marketable securities
Fixed assets
Fixed assets, also known as non-current assets or long-term assets, are meant to be held for extended periods of time. These holdings can't be converted into cash quickly because they're illiquid assets.
Examples of fixed assets include:
- Retirement savings
- Property or real estate
- Buildings
- Machinery
- Equipment
Asset classification: Physical existence
The “physical existence” asset classification refers to whether an asset materially exists. Assets in this category are divided into two types: tangible assets and intangible assets.
Tangible assets
Tangible assets are physical material assets. These types of assets will often overlap with current and fixed assets.
Examples of tangible assets include:
- Property or real estate
- Machinery
- Cash
- Equipment
- Office supplies
- Property, plant and equipment (PP&E)
- Inventory
Intangible assets
In contrast, intangible assets don’t exist in a physical form.
Examples of intangible assets include:
- Patents
- Brand rights
- Copyrights
- Trademarks
- Licenses and permits
- Intellectual property
- Brand recognition
Asset classification: Usage
The “usage” asset classification refers to assets based on their use or purpose. The two asset types under this category are “operating” and “non-operating” assets. This is primarily a classification used for business purposes, rather than personal purposes.
Operating assets
Operating assets are essential to a company’s core business operations to directly support continued revenue generation. In other words, they are in daily use. Operating assets include current, fixed, tangible and intangible assets that altogether help support a business’s operations.
Examples of operating assets include:
- Inventory
- Cash
- Accounts receivable
- Machinery
- Copyrights
- Patents
- Buildings
- Vehicles
- PP&E
Non-operating assets
In contrast, non-operating assets aren’t part of a company’s core operations. This means they're not in daily use, and, therefore, the income that comes from non-operating assets contributes to the non-operating income of a company. These can also be called “redundant assets” since they aren’t essential.
Examples of non-operating assets include:
- Marketable securities
- Vacant land or buildings
- Short-term investments
- Spare, unused or idle equipment, parts or resources
- Unallocated cash
What’s the difference between assets and liabilities?
You may often hear the word “asset” in the same sentence as “liabilities.” Assets are resources or items that your company owns that generate revenue or provide value and economic benefit. In contrast, liabilities are amounts or items that you owe other parties.
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