Meaning and Different Types of Assets

An asset is a resource or property having a monetary/economic value possessed by an individual or entity, which is capable of producing some future economic benefit. Assets are generally brought in business to benefit from them and to increase the value of a business. In simple language, it means anything that a person “owns” say a house or equipment. In accounting context, an asset is a resource that can generate cash flows. Assets are found on the right-hand side of the balance sheet and can also be referred to as “Sources of Funds”.

Assets are classified into different types based on their convertibility to cash; use in business or basis their physical existence. Assets are a part of the balance sheet and are generally stated at cost or market value, whichever is lower.

Classification of Assets

Assets are generally classified in the following three ways depending upon nature and type:

1. Convertibility: One way of classification of assets is based on their easy convertibility into cash. According to this classification, total assets are classified either into Current Assets or Fixed Assets.

Current Assets

Assets which are easily convertible into cash like stock, inventory, marketable securities, short-term investments, fixed deposits, accrued incomes, bank balances, debtors, prepaid expenses etc. are classified as current assets. Current assets are generally of a shorter life span as compared to fixed assets which last for a longer period. Current assets can also be termed as liquid assets.

Fixed Assets

Fixed assets are of a fixed nature in the context that they are not readily convertible into cash. They require elaborate procedure and time for their sale and converted into cash. Land, building, plant, machinery, equipment and furniture are some examples of fixed assets. Other names used for fixed assets are non-current assets, long-term assets or hard assets. Generally, the value of fixed assets generally reduces over a period of time (known as depreciation).

2. Physical Existence: Another classification of assets is based on their physical existence. According to this classification, an asset is either a tangible asset or intangible asset.

Tangible Assets

Tangible assets are those assets which we can touch, see and feel. All fixed assets are tangible. Moreover, some current assets like inventory and cash fall under the category of tangible assets too.

Intangible Assets

Intangible assets cannot be seen, felt or touched physically by us. Some examples of intangible assets are goodwill, franchise agreements, patents, copyrights, brands, trademarks etc.

These are also classified under assets because the business owners reap monetary gains with the help of these intangible assets. A company’s trademark, brand and goodwill contribute to its marketing and sale of its products. Many buyers purchase goods only by seeing its trademark and brand in the market.

3. Usage:

According to a third way of classification, assets are either operating or non-operating. This classification is based on usage of the asset for business operation. Assets which are predominantly used for day-to-day business are classified as operating assets and other assets which are not used in operation are classified as non-operating.

Operating Assets

All assets required for the current day-to-day transaction of business are known as operating assets. In simple words, the assets that a company uses for producing a product or service are operating assets. These include cash, bank balance, inventory, plant, equipment etc.

Non-operating Assets

All assets which are of no use for daily business operations but are essential for the establishment of business and for its future needs are termed as non-operational. This could include some real estate purchased to earn from its appreciation or excess cash in business, which is not used in an operation.

Understanding Total Assets and Net Assets

The meaning of total assets is truly reflected in the accounting equation as the sum total of liabilities and owner’s equity. While “Net Assets” is a term used to state the difference between total assets and total liabilities. Consequently, it can be noted that net assets and owner’s equity are virtually the same i.e. both represent the difference between “Total Assets” and “Total Liabilities”

Total Assets = Total Liabilities + Owner’s Equity

 Net Assets = Total Assets – Total Liabilities

 The following table will give you a clear picture of the types of assets:

Current Asset Fixed Asset Tangible Asset Intangible Asset OperatingAsset Non-operating


Cash Land Land Goodwill Cash Goodwill
Bank Balance Road Road Patents Bank Balance Patents
Investments Building Building Brand Inventory
Inventory Furniture Furniture Trademark Stocks
Stock Plant Plant Copyright Prepaid Exp.
Receivables Machinery Machinery Receivables
Prepaid Exp. Equipments Equipment Plant
Cash Machinery

Last updated on : July 28th, 2017
What’s your view on this? Share it in comments below.


  2. raja
  3. phinias
  4. namisanvu doreen
  5. pranee
  6. ziaurrehman
  7. U a
  8. Maricel
  9. shamsher elahi
  10. shafiqur rehman
  11. parvatraj
  13. ashiq hussain khan
  14. shraddha
  15. Omkar Phadke

Leave a Reply

What is Expense? – Definition and Meaning
  • Fund Flow Statement
    Fund Flow Statement
  • Lease Accounting by Lessee and Lessor
    Lease Accounting by Lessee and Lessor
  • What is Accounting?
    What is Accounting?
  • Branches of Accounting
    Branches of Accounting
  • Subscribe to Blog via Email

    Enter your email address to subscribe to this blog and receive notifications of new posts by email.

    Join 122 other subscribers

    Recent Posts

    Find us on Facebook

    Related pages

    liquidity ratios analysisirr formula with examplehow to record a capital lease journal entrytypical debt covenantscompute debt ratioinstallment buying definitionhow to calculate cost of equity using capmopportunity cost npvwhat is a good turnover ratiozero based budgeting advantageswelfare maximizationnpv and profitability indexhow to record a capital lease journal entryfixed asset turnover rationoperating lease or finance leasecvp accounting formulacapitalize expensesmarket to book ratio definitionfactoring arrangementddm calculatorreturn on capital employed ratio interpretationeoq model of inventory managementcompute the payback periodthe basic accounting equation ishypothecation in hindiunderstanding accounting debits and creditsconvertible bond conversion pricedifference between secured and unsecured debenturesmiller modigliani theoremcredit sales vs accounts receivabletypes of company sharesmicro and macro environment analysisadvantages and disadvantages of borrowing moneycapitalize interest expenseamerican depositary receipts examplemost common depreciation methodwhat is an asset accounting definitiondisadvantages of budgetingroe return on equityhow to assess credit worthiness of a companyeva waccquick assets ratio formulacash flow and fund flowdiscounting definedividend valuation model advantages and disadvantagesdividend valuation model exampleindustry waccmeaning of marginal costingexample of ratio analysis financial statementhow to calculate constant growth rateprofitability ratios formulaspayback analysis calculatorequity share capital and preference share capitalhypothecation loanstock exchange advantages and disadvantagesadvantages of cash flow statementppe turnoverexample of accounting equationus gaap goodwill impairment testoverdraft facility interest ratecalculate marginal cost formulaadvantages of preparing a cash budgetprofitability ratios formulassolvency ratio normwhat is the purpose of double entry bookkeepingpreference share vs equity sharedividend discout modelmerger disadvantagesadvantages and disadvantages of owners capitalbank overdraft definefactor affecting capital structuremaximization of wealth