An asset is anything of value or a valuable resource that can be converted into cash. Individuals, businesses and governments own assets. For a business, an asset can generate income, or a business can benefit in some way from owning or using the asset.
Key points to remember
- An asset is something that contains economic value and / or future benefit.
- An asset can often generate cash flow in the future, such as a piece of machinery, a financial guarantee or a patent.
- Personal property can include a house, car, investments, artwork, or household items.
- For companies, assets are recorded on the balance sheet and deducted from liabilities and equity.
Personal goods are things of present or future value held by an individual or a household. Here are some common examples of personal assets:
- Cash and cash equivalents, certificates of deposit, checking and savings accounts, money market accounts, physical cash, treasury bills
- Property or land and any structure permanently attached to it
- Personal property: boats, collectibles, home furnishings, jewelry, vehicles
- Investments: annuities, bonds, cash value of life insurance policies, mutual funds, pensions, retirement plans (IRA, 401 (k), 403 (b), etc.)
Your net worth is calculated by subtracting your debts from your assets. Essentially, your assets are all you own, and your debts are all you to have to. A positive net worth indicates that your assets are worth more than your liabilities; negative equity means your liabilities exceed your assets (in other words, you are in debt).
For businesses, assets are valuable items that support production and growth. For a business, assets can include machinery, property, raw materials, and inventory, as well as intangible assets such as patents, royalties, and other intellectual property.
The balance sheet lists the assets of a business and shows how those assets are funded, whether through debt or issuance of equity. The balance sheet gives an overview of how the management of a company uses its resources. There are two types of assets in a typical balance sheet.
Current assets are assets that can be converted to cash during a financial year or operating cycle. Current assets are used to facilitate daily operating expenses and investments.
Examples of short-term assets are:
Fixed assets are long-term assets or non-current assets. Tangible fixed assets are assets with physical substance and are recorded on the balance sheet and listed as tangible fixed assets (tangible fixed assets). Intangible assets are long-lived assets without physical substance, such as licenses, trademarks and copyrights.
Here are some examples of fixed assets:
- Vehicles (such as company trucks)
- Office furniture
The two main differences with business assets are that non-current assets (like fixed assets) cannot easily be converted to cash to meet operating expenses or short-term investments. Conversely, current assets should be liquidated during a financial year or operating cycle.