What are Assets?
An asset is an expenditure that has utility through multiple future accounting periods. If an expenditure does not have such utility, it is instead considered an expense. The two main types of assets are current assets and non-current assets. These classifications are used to aggregate assets into different blocks on the balance sheet, so that one can discern the relative liquidity of the assets of an organization.
What are the Properties of an Asset?
There are three main properties that something must have in order to be classified as an asset. First, it must have economic value. If it has no value, then it cannot be recorded in an organization’s accounting system. Second, it must be a long-term resource to its owner, so that it is expected to generate economic benefits for several future periods. Finally, the reporting entity must own the item, which gives it the ability to sell or otherwise dispose of the asset at some point in the future.
Types of Current Assets
Current assets are expected to be consumed within one year, and commonly include the following line items:
Types of Non-Current Assets
Non-current assets are also known as long-term assets, and are expected to continue to be productive for a business for more than one year. The line items usually included in this classification are:
Tangible fixed assets (such as buildings, equipment, furniture, land, and vehicles)
Intangible fixed assets (such as patents, copyrights, and trademarks)
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Investment Assets
The classifications used to define assets change when viewed from an investment perspective. In this situation, there are growth assets and defensive assets. These types are used to differentiate between the manner in which investment income is generated from different types of assets.
Growth assets generate income for the holder from rents, appreciation in value, or dividends. The values of these assets can rise in value to generate a return for the holder, but there is a risk that their valuations can also decline. Examples of growth assets are:
Equity securities
Rental property
Antiques
Defensive assets generate income for the holder primarily from interest. The values of these assets tend to hold steady or can decline after the effects of inflation are considered, and so tend to be a more conservative form of investment. Examples of defensive assets are:
Savings accounts
Certificates of deposit
Tangible and Intangible Assets
Assets may also be classified as tangible or intangible assets. Intangible assets lack physical substance, while tangible assets have the reverse characteristic. Most of an organization's assets are usually classified as tangible assets. Examples of intangible assets are copyrights, patents, and trademarks. Examples of tangible assets are vehicles, buildings, and inventory.
