An asset is something that has value and is owned by an entity. Assets add to the net worth of the entity that owns it. The entity that owns an asset can be a person, a company, or any other type of organization.

Asset

Examples of assets are cars, buildings, land, machines, equipment, cash and moneys owed to an entity.

Assets can be classified in several ways:

• current assets
• fixed assets
• long-term investments
• liquid assets
• illiquid assets
• tangible assets
• intangible assets
• value appreciating assets
• value depreciating assets
• movable assets
• immovable assets

Current Assets, Fixed Assets and Long-term Investments

Current assets (also called “short-term assets”) are assets that will usually be sold, exchanged, converted to cash, or used up within one year. Like water that flows from one place to the next in a current, these type of assets change often and are continually converted from one form to another.

Current assets

Current assets include cash and cash equivalents (currency, moneys held in bank accounts, cheques, money orders, etc.), short-term investments (e.g. shares bought and held to sell in the near future), receivables (moneys owed by debtors), inventory (stock) and prepaid expenses (e.g. insurance or services that were paid for, but that haven’t been used yet).

Fixed assets (also called “property, plant and equipment”, “PP&E”, “long-term assets” or “capital assets”) are illiquid assets used in the day-to-day operation of a business, with the purpose of generating a profit. Fixed assets are normally kept for a long period of time.

Fixed assets

Examples of fixed assets are land and buildings, vehicles, furniture, equipment, computers and machinery.

Long-term investments (usually just referred to as “investments”) are assets that are bought and held for a long period of time, with the aim of achieving capital growth in the value of the assets, and/or earning dividends.

Long-term investments

Long-term investments differ from fixed assets in that they are not used in the day-to-day operation of a business. They are meant to generate returns in a more passive manner.

Long-term investments include investments in securities (e.g. bonds, equities, and long-term notes), fixed-assets not used in operations (e.g. property) and investments in retirement or pension funds.

Liquidity of Assets

The liquidity of an asset refers to the ease with which an asset can be bought and sold, i.e. converted to cash.

Assets that can be converted to cash easily are said to be more liquid than assets that cannot be converted to cash as easily.

Liquid assets are assets that are easy to buy and sell. These assets are easy to convert to cash.

Liquid assets

Illiquid assets are assets that are difficult to buy and sell. These assets are difficult to convert to cash.

Illiquid assets

The most liquid assets are currency, moneys held in bank accounts, cheques and money orders. The most illiquid assets are things like factories, expensive and specialized equipment, and large areas of land.

Tangible and Intangible Assets

Tangible assets are assets that have substance. You can see or touch or in some other tangible way evaluate their existence. Examples of tangible assets are property, equipment, vehicles and computers.

Tangible assets

Intangible assets are assets that have value, but don’t have substance. Intangible assets are usually very difficult to appraise. They include assets like copyrights, patents, trademarks and goodwill.

Intangible assets

Appreciation and Depreciation of Assets

Some assets tend to increase or decrease in value, as time goes by.

Value appreciating assets are assets that tend to increase in value over time. Examples of value appreciating assets are long-term investments, property, equity, art and antiques.

Value appreciating assets

Value depreciating assets are assets that tend to decrease in value over time. Examples of value depreciating assets are vehicles, computer and other electronic equipment, equipment and furniture.

Value depreciating assets

Movable and Immovable Assets

Movable assets are assets that are either not affixed to a building, or are fixed to a building, but not permanently affixed, can be removed without costly or extensive alterations or repairs to the building, and can be used after removal.

Movable assets

Examples of movable assets include furniture and equipment that are easy to move from one building to another.

Immovable assets are assets that are permanently affixed to a building, cannot be easily or cheaply removed from the building, or cannot be used after removal from the building.

Immovable assets

Examples of immovable assets are lifts, surveillance and alarm systems and billboards.

This definition is part of the Dictionary of Financial Terms. If you want to receive a notice every time a new definition is published, you can subscribe to Liberta.

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