What Are Assets in Accounting?
Assets are one of the most important items on your balance sheet. Whether youre using your companys assets to help grow revenues or youre employing them as collateral when you take out a loan, there are a broad range of uses for assets in accounting. However, there are many different types of assets, and many people arent aware of the distinctions between them. Explore the definition of assets in accounting & find out about the types of assets in our comprehensive guide. Essentially, an asset is any resource with financial value that is controlled by a company, country, or individual. There is a broad range of assets that your business may own, create, or benefit from, including real estate, cash, office equipment, goodwill, investments, patents, inventory, and so on. Your balance sheet lists all of your companys assets and explains how they are financed, i.e., whether through debt, equity, or owned outright. Understanding the different types of assets with examples  When we speak about assets in accounting, were generally referring to six different categories: current assets, fixed assets, tangible assets, intangible assets, operating assets, and non-operating assets. Your assets can belong to multiple categories. For example, a building is an example of a fixed, tangible asset. Its important to make sure that youre classifying your assets properly, otherwise, you could run into problems. The correct classification of fixed assets in accounting can help you to properly gauge your businesss net working capital, whereas understanding the difference between tangible and intangible assets is an important element of assessing risk and solvency. Heres a little more information about the different types of assets with examples:  Current assets  Current assets are assets that can be converted to cash or cash equivalents within the space of one year. They are also referred to as liquid assets owing to their importance for your businesss liquidity. Here are some examples of current assets:  Cash and cash equivalents  Accounts receivable  Marketable securities  Inventory  Short-term investments  Fixed assets  Fixed assets cannot be converted to cash or cash equivalents within the space of one fiscal year. They are also referred to as non-current assets or long-term assets. Here are some examples of fixed assets:  Real estate  Patents  Equipment, tools, and machinery  Furniture  Long-term investments  Tangible assets  Tangible assets are assets with some kind of physical presence. Here are some examples of tangible assets:  Real estate  Cash  Office supplies  Vehicles  Equipment, tools, and machinery  Intangible assets  Intangible assets are assets that arent physical but offer long-term value to your company. Here are some examples of intangible assets:  Trademarks  Brand recognition  Goodwill  Research and development  Patents  Operating assets  Operating assets are assets that enable your business to generate revenue via your core business operations. Here are some examples of operating assets:  Equipment, tools, and machinery  Cash  Real estate  Patents  Inventory  Non-operating assets  Non-operating assets are assets that do not help your business generate revenue via your core business operations but may still help you generate income in other ways. Above, weve provided you with a guide to the different types of assets, but when it comes to the types of assets on a balance sheet, its a little different. Basically, when youre recording your businesss assets in your accounts, theres no need to categorize your assets on such a granular level. Most of the time, there are only two types of assets on a balance sheet: current assets and fixed assets. Furthermore, intangible assets pose issues for classifying different types of assets in accounting, as its very difficult to assign a value to them. In any case, theres no standardized valuation method. Ultimately, if you arent able to accurately assign a value to an intangible asset, you cannot report it on your balance sheet. Its also important to note that the different types of assets in accounting are expensed in different ways. Although both processes describe similar things, depreciation is used for tangible assets (assets with a physical presence), whereas amortization is used for intangible assets. Its essential to get this right, as depreciation and amortization can have a meaningful impact on your businesss taxable income. Take a look at how to calculate total asset turnover ratio. We can help  GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.