What is an Asset?
In financial terms, an asset is any object or resource that can be monetized. Assets can be owned either by individuals or companies. Assets owned by companies might generate revenue in some form or benefit the company in some way. Similarly, personal assets like a house, a car also yield long-term benefits for individuals.
What are the Types of Assets?
Personal Assets
Personal assets are things that are owned by an individual or a household that generates or will generate value. Examples of personal assets include:
- Physical cash and cash equivalents
- Certificates of deposit
- Savings accounts
- Money market accounts
- Treasury bills
- Land owned
- Personal property – Jewellery, automobiles
- Investments – Bonds, the cash value of life insurance policies, mutual funds, pensions, retirement plans etc.
An individual’s net worth is calculated by subtracting his liabilities from his assets. Hence a positive net worth would mean the value of the assets outweighs the value of the liabilities, while a negative net worth would suggest the opposite.
Business Assets
Assets that generate revenue and value for a company or a business are categorized as business assets. Business assets can be both tangible like machines, property, raw materials or non-tangible like patents, royalties.
A business’s balance sheet lists all its assets and liabilities. It is a great way to assess how a business is performing at any given time and provides a base for calculating its rate of return. A balance sheet typically lists two types of assets:
Current Assets
Current assets are the ones that can be converted into cash within one fiscal year and are usually the ones that allow for day-to-day operations of a business. Examples of current assets include:
- Cash and cash equivalents: Treasury bills, certificates of deposit, and physical cash
- Marketable securities: Debt securities or equity that is liquid
- Accounts receivables: Money owed by customers to be paid in the short-term
- Inventory: Goods available for sale or raw materials
Fixed Assets or Capital Assets
Tangible, physical assets that are ‘acquired to carry on the business of a company with a life exceeding one year’ are known as Fixed or Capital assets. Examples of fixed assets include:
- Land
- Buildings
- Vehicles
- Tools
- Machinery
- Electronic items such as mobile phones
Fixed assets are long-term assets unlike the current assets. So for ready cash, current assets can be liquidated in the short term.
Asset valuation plays an important role while selling a business. While capital or fixed assets can be valued easily, the intangible assets might be difficult to evaluate.
