What Is an Asset? Definition, Types, and Examples

An asset can by a tangible (physical) asset, or it can be intangible (intellectual property or other rights). Assets are different from liabilities and equity, which is important to understand for both personal finances and business accounting. Using current market value is more common in financial reporting. Assets are valued at either their historical cost or current market value. For instance, a company may have acquired a piece of machinery for $100,000 five years ago.

It is also one of the three concepts of the fundamental accounting equation, alongside liabilities and equity. A potential acquirer will pay particular attention to the various types of assets listed on the balance sheet of a target company. The emphasis will be on judging whether the asset value stated on the balance sheet corresponds to the actual value of an asset, or if there are significant differences. If the actual value is lower, the acquirer will likely reduce the size of its bid. If an asset has a higher value, the acquirer will have greater interest in acquiring the business, and so may increase its offer price. Intangible assets may have a physical representation through a contract or form, but the asset itself cannot be held or touched in any absolute sense.

Assets

If you don’t have work or internship experience in accounting, you can focus on coursework you had that involved core accounting skills, such as understanding assets, liabilities, and equity. You can also use your cover letter to describe any experiences you have outside of the professional or academic space. For example, you can talk about if you’ve helped a friend or family member balance their small business’s books or organize their company’s michael castellani at marshall university finances. Assets are at the heart of any business’ finances, so business owners and members of a company’s finance team need to understand their company’s assets intimately. Accountants, in particular, must have a strong understanding of assets and how they affect a company’s finances. Accounting often involves looking at the relationships between assets and other key metrics of a business’s finances, like revenue, liabilities, and equity.

Distinguishing operating assets from non-operating assets also helps organizations see how each asset type drives overall revenue. If an asset can be physically touched, it is classified as a “tangible” asset (e.g. PP&E, inventory). They are the opposite of liabilities, which are what the business owes. Accountants typically expense these assets relative to their respective life expectancy. Here’s a list of the most common assets in the chart of accounts.

Definition and Examples of Assets

The value of assets can be determined through different methods, such as the depreciation method, standard cost method, and market value method. It enables individuals and organizations to convert these assets into cash or cash equivalents and limits others from controlling or using them. Fixed assets are also referred to as noncurrent assets, long-term assets, or hard assets. Fixed assets are long-lived assets that cannot be easily and readily converted into cash or cash equivalents.

In the financial accounting sense of the term, it is not necessary to have title (a legally enforceable ownership right) to an asset. An asset may be recognized as long as the reporting entity controls the rights (economic resource) the asset represents. Financial assets represent investments in the assets and securities of other institutions. Financial assets include stocks, sovereign and corporate bonds, preferred equity, and other, hybrid securities.

Financial Assets

Rebekiah received her BBA from Georgia Southwestern State University and her MSM from Troy University. She has experience teaching math to middle school students as well as teaching accounting at the college level. She has a combined total of twelve years of experience working in the accounting and finance fields.

Assets refer to anything that has economic value and can be converted into cash. They can be classified based on their convertibility, physical existence, or usage. The most common methods are the depreciation method, market value method, and standard cost method.

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How easily a company can convert something to cash is called liquidity. Some resources are very liquid, meaning they can be turned into cash easily. An asset can also represent access that other individuals or firms do not have. Furthermore, a right or other type of access can be legally enforceable, which means economic resources can be used at a company’s discretion.

Some intangible assets are not recorded on the balance sheet, unless they have been purchased or acquired. For example, a taxi license can be recognized as an intangible asset, because it was purchased. Also, the value of a customer list that is part of an acquired business can be recorded as an asset. However, the value of an internally-generated customer list cannot be recorded as an asset. Non-current assets, often called fixed assets, are not very liquid — these are long-term holdings owned by the company for many years before they become cash.