What Are Assets? Your Guide

By Talon Abernathy

March 22, 2023

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In simple words, an asset is something of value owned by an organization or person. Your car is an asset and so is your house. Other examples of assets include patent formulas, industrial machinery, a company’s brand name and your 401(k).

Assets represent a fairly simple concept. If you can exchange something for money, it’s an asset. There are a few exceptions, of course. Labor, for example, is not traditionally counted as an asset, even though you can trade it for money. However, once you get into the weeds, assets can start to look a little tricky.

What Is an Asset?

An asset constitutes anything that holds economic value — current or future — to a person or organization. Businesses, governments and non-profits all own assets. So do many individuals.

Accountants sort and classify assets along several metrics, including:

• The time frame in which they expect to be used
• Whether the asset physically exists
• How easy it is to convert the asset into cash

Types of Assets

Assets are classed into several groupings. Many of these categories overlap and are used in different contexts. For example, a trademarked song is both an illiquid asset and a fixed asset. A truck represents a tangible asset and a fixed or current asset.

Some of these terms are primarily used in business settings by accountants. Others have entered regular speech and are used by ordinary people.

1. Liquid Assets

Liquid assets can be easily sold or converted into cash or a cash equivalent. Examples of highly liquid assets include money, bonds, stocks and accounts receivable.

2. Illiquid Assets

Illiquid assets take longer to sell. A few examples of illiquid assets include buildings, art and patents.

3. Tangible Assets

Tangible assets represent any physical item that can be used or exchanged for economic value. Everything from gold ingots to houses constitutes tangible assets. A company’s inventory, heavy machinery and shipping fleet are all examples of tangible assets in a business setting.

4. Intangible Assets

As the name suggests, intangible assets cannot be touched or held. Trademarks, designs, blueprints, electronic art, song lyrics, patents and other forms of intellectual property are all examples of intangible assets.

5. Current Assets

Current assets refer to assets that will be used up or converted into cash within a year’s time. Accountants use this term to help with planning and bookkeeping. Common types of current assets include cash, accounts receivable, prepaid expenses, inventory and loans.

6. Fixed Assets

Fixed assets have a lifespan longer than a year. Common examples of fixed assets include buildings and machinery. Accountants use depreciation to spread out the cost of a fixed, physical asset over its lifetime. Different depreciation calculations may be used depending on the asset and other factors.

Straight-line depreciation uses an estimate of the asset’s expected lifespan, along with its salvage value, to arrive at a sum to be written off each year until its value goes to zero. By contrast, the declining balance method writes off a larger portion of the asset’s value in the time period shortly after purchase.

7. Financial Assets

Financial assets include cash and non-physical investments made in outside organizations, such as stocks, bonds, mutual funds and bank deposits. 

8. Personal Assets

Personal assets are owned by private individuals, not companies, governments or other organizations. Common examples of personal assets include cars, houses, savings accounts, jewelry, clothes, artwork and other property.

9. Business Assets

Business assets are owned by a company and typically include cash, heavy machinery, accounts receivable, certain types of leases, buildings, cars, inventory, company stock and patents.

Companies use assets in a variety of different ways. Some assets are consumed, such as prepaid leases and office equipment. Other assets, such as cash, may be invested back into the business or given to shareholders as dividends.

Final Take

Assets encompass virtually anything that can return an economic benefit to the end user. For the individual, investing in financial assets is a key step toward achieving financial independence.

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