For individuals, assets include checking and savings accounts, retirement accounts, equity in a home or other property, vehicles, and any equity a person has in a business, private or otherwise. In a personal and business sense, assets are a key component of financial stability. Assets are reported on a company’s balance sheet, and are part of the elemental accounting equation: Assets = Liabilities + Equity When they are listed on a company balance sheet, assets are divided into two main categories: current assets and fixed assets. In general, you can turn a current asset into cash or cash equivalents quickly, whereas fixed assets are meant to be held for the long term.
How Assets Work
Individuals buy and sell assets, whether they are shares of stock, a home, a vehicle, or anything else, for a number of reasons. Someone may sell shares of stocks or bonds to use the money in another fashion or to reinvest in a different manner. As with companies, assets may be sold because they are losing value too. Companies acquire assets in the course of doing business. In addition to the tangible and intangible assets mentioned above, when a company purchases another business, that becomes an asset. This can create long-term value. However, throughout history, many companies have acquired businesses only to sell or fold them later at a loss.
Current Assets vs. Fixed Assets
Cash and cash equivalentsAccount receivablesShort-term depositsInventoryMarketable securitiesOffice supplies
Fixed assets are also called long-term assets. They cannot readily be turned into cash or cash equivalents. Examples of fixed assets include:
Real estateVehiclesMachinery and other equipment
Types of Assets
Assets can be categorized further for the purpose of analyzing their use and value.
Personal Assets
Just as businesses compile a balance sheet reporting assets and liabilities, individuals or households are wise to take account of the same. Like a corporate balance sheet, a personal balance sheet uses an individual’s or household’s total assets and total liabilities to determine net worth. Personal assets include checking and savings account balances, retirement accounts, equity in a home, vehicles, as well as any equity a person has in a small business. Liabilities include the balance due on a mortgage, credit card balances, loans, and legal judgments against you.
Tangible and Intangible
Tangible assets include real estate (such as a plant), equipment, vehicles, cash on hand, and inventory. Intangible assets include patents and copyrights, trade secrets, licenses and permits, intellectual property, and brand image.
Operating or Nonoperating
Operating assets are those used in the daily operation of a business to generate revenue (cash, inventory, a manufacturing plant). Nonoperating assets are not required for daily business operations, but may still generate revenue (investments, vacant land, and interest income from a fixed deposit, for example). The additional classification of assets helps company leaders and analysts determine a company’s solvency and risk, as well as determining what percentage of a company’s revenues come from its core business operations. For example, electric carmaker Tesla’s 2021 first-quarter report shows a net income of $438 million for the quarter and $10.4 billion in revenue. The sale of two assets—emissions credits and Bitcoin—added to the company’s revenue.
