What Is an Asset? Definition and Types of Assets

An asset is any resource or good used to generate cash flow, reduce expenses, or provide future economic benefits for an individual, government, or business. Assets contain economic value and can benefit a company’s operations, increase the value of a business, or raise an individual’s net worth.

Personal assets refer to those owned by an individual, while business assets refer to those owned by a corporation or company. Assets can be physical or intangible, currently available to sell or available for long-term sale, or used for the daily operation of a business. You can calculate a company’s equity, solvency, or financial health by subtracting its liabilities—meaning outstanding debts or accounts payable—from the value of its total assets.

People, businesses, and the government can accumulate assets in the hopes they will provide future short-term or long-term economic gains. An asset can either appreciate (or increase) in value, or depreciate (or decrease) in value, which changes the overall solvency of the individual or company as a whole.

Solvency means that a company’s assets are enough to cover its outstanding liabilities. Companies can use a balance sheet—which is a financial document showing a company's current assets, liabilities, and stockholders' equity—to track how their assets measure up against their liabilities. This is a helpful way of diagnosing the overall financial health of a company.

There are a number of different ways to categorize assets. Assets are generally classified by how quickly they can be converted into cash, their physical or non-physical presence, or their use and/or purpose. Below is a breakdown of some of the different types of assets.

1. 1. Current assets: Current assets are highly liquid assets that can be quickly sold and converted into currency. Financial assets like cash, bonds, mutual funds, stocks, and other marketable securities are considered the most liquid current assets—meaning that an asset can be sold easily and quickly without affecting its price. Current assets for businesses can include cash, accounts receivable, inventory, and prepaid expenses.
2. 2. Fixed assets: Fixed assets, also referred to as hard assets or long-term assets, may take a long time to earn cash value and are generally considered low-liquidity, meaning that they often cannot quickly be sold at their desired value. Some examples of fixed assets include buildings, land, furniture, or any other type of asset that is not intended for sale within the year.
3. 3. Tangible assets: Tangible assets are real property—like inventory, real estate, machinery, cash, or furniture—that is physically tangible, and are often in the owner’s possession. Most tangible assets are also considered current assets.
4. 4. Intangible assets: Intangible assets are items or goods that exist theoretically rather than physically. Some examples of intangible assets include permits, intellectual property, patents, brand reputation, and trademarks, which in turn have their value boosted through successful use.
5. 5. Operating assets: Operating assets are any assets that generate revenue through day-to-day business operations and help maintain workflow. Some examples of operating assets are copyrights, licenses, inventory, or machinery.
6. 6. Non-operating assets: Non-operating assets are business-owned items that generate revenue but are not necessarily needed for everyday operations, such as vacant land or short-term investments.

You can assess the value of the company by comparing its current liabilities, assets, and equity to one another. These terms often appear on a company’s balance sheet, which breaks down the number of assets held, along with the shareholder’s equity and business’s liabilities. Here is a little more about how the three relate.

• Assets: Assets are physical or non-physical items that gain or lose value over time which help their owners build equity—a debt-free valuation of assets. Assets include items that a company owns or is owed. Assets represent a net gain in value, while liabilities represent a net loss in value.
• Liabilities: Liabilities are legal obligations or debts that a person or business is responsible for, which are subtracted from the value of an entity’s assets to calculate equity. Liabilities can include rent for a building, accounts payable, bank loans, or payroll.
• Equity: Equity is the debt-free evaluation of held assets or the difference between assets and liabilities. Equity refers to the true value of assets after other debts or financial obligations are removed.

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