From a financial perspective, especially for accounting purposes, assets are the economic resources available to an individual or business. They include anything that is tangible (or physical) and anything intangible (intellectual) that can be considered to have a positive economic benefit. In basic terms assets are those resources which can easily be converted into cash, though cash itself is of course an asset as well.
What are current assets?
Current assets are the cash and any other assets a business holds which can be reasonably converted into cash (or gold) in either the normal operating period for the company, or a single year (whichever period is longest) without preventing a business from carrying out normal operations.
There are five key items that count as current assets:
- Cash/Cash Equivalents – the most liquid of assets (includes currency holdings, bank deposit accounts and any negotiable instruments)
- Short-term investments – these are those securities which have been purchased in order to make short-term gains (price increases)
- Receivables – a percentage of the total amount of currently unpaid/predicted invoices
- Inventory – the physical assets of the business, normally reported as lower than market value to take into account depreciation
- Prepaid Expenses – expenses which have been paid in cash
What are fixed assets?
Fixed assets are often known as PPE (plant, property and equipment) – assets which are necessary for the long-term management of the business. They include real-estate, buildings, furniture, tools, etc. and certain assets which can be consumed by operation (minerals, timber, etc.) Over time these assets are written off through depreciation.
These are the intellectual property of a company; such as patents, copyrights, trademarks, etc. and are hard to value they are normally amortized over periods from 5 to 40 years. The exception to this rule is goodwill.
These are items on the balance sheet that have a physical substance and they include currency, buildings, plant, etc.
Long-Term Investment Assets
These are investments that are not intended to be realized in the short term but are available to a company for its long-term plans. They include:
- Securities – bonds, stock or long-term notes
- Fixed Assets (non-operational) – this could include things like land held for sale
- Special Funds – Sinking or Pension Funds
- Insurance – some form of insurance which will pay an annuity or other return
Assets are the total value of a company, excluding its operating expenses and costs.