Types of Assets

Classifying assets based on convertibility, physical existence and usage

What are the Main Types of Assets?

An asset is a resource owned or controlled by an individual, corporation, or government with the expectation that it will generate a positive economic benefit. Common types of assets include current, non-current, physical, intangible, operating, and non-operating. Correctly identifying and classifying the types of assets is critical to the survival of a company, specifically its solvency and associated risks.

The International Financial Reporting Standards (IFRS) framework defines an asset as follows: “An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise.”

Examples of assets include:

Cash and cash equivalents
Accounts Receivable
Inventory
Investments
PPE (Property, Plant, and Equipment)
Vehicles
Furniture
Patents (intangible asset)

Properties of an Asset

There are three key properties of an asset:

Ownership: Assets represent ownership that can be eventually turned into cash and cash equivalents
Economic Value: Assets have economic value and can be exchanged or sold
Resource: Assets are resources that can be used to generate future economic benefits

Classification of Assets

Assets are generally classified in three ways:

Convertibility: Classifying assets based on how easy it is to convert them into cash.
Physical Existence: Classifying assets based on their physical existence (in other words, tangible vs. intangible assets).
Usage: Classifying assets based on their business operation usage/purpose.

Types of Assets - Diagram and Breakdown

Classification of Assets: Convertibility

If assets are classified based on their convertibility into cash, assets are classified as either current assets or fixed assets. An alternative expression of this concept is short-term vs. long-term assets.

1. Current Assets

Current assets are assets that can be easily converted into cash and cash equivalents (typically within a year). Current assets are also termed liquid assets and examples of such are:

Cash
Cash equivalents
Short-term deposits
Accounts receivables
Inventory
Marketable securities
Office supplies

2. Fixed or Non-Current Assets

Non-current assets are assets that cannot be easily and readily converted into cash and cash equivalents. Non-current assets are also termed fixed assets, long-term assets, or hard assets. Examples of non-current or fixed assets include:

Land
Building
Machinery
Equipment
Patents
Trademarks

Classification of Assets: Physical Existence

If assets are classified based on their physical existence, assets are classified as either tangible assets or intangible assets.

1. Tangible Assets

Tangible assets are assets with physical existence (we can touch, feel, and see them). Examples of tangible assets include:

Land
Building
Machinery
Equipment
Cash
Office supplies
Inventory
Marketable securities

2. Intangible Assets

Intangible assets are assets that lack physical existence. Examples of intangible assets include:

Goodwill
Patents
Brand
Copyrights
Trademarks
Trade secrets
Licenses and permits
Corporate intellectual property

Classification of Assets: Usage

If assets are classified based on their usage or purpose, assets are classified as either operating assets or non-operating assets.

1. Operating Assets

Operating assets are assets that are required in the daily operation of a business. In other words, operating assets are used to generate revenue from a company’s core business activities. Examples of operating assets include:

Cash
Accounts receivable
Inventory
Building
Machinery
Equipment
Patents
Copyrights
Goodwill

2. Non-Operating Assets

Non-operating assets are assets that are not required for daily business operations but can still generate revenue. Examples of non-operating assets include:

Short-term investments
Marketable securities
Vacant land
Interest income from a fixed deposit

Importance of Asset Classification

Classifying assets is important to a business. For example, understanding which assets are current assets and which are fixed assets is important in understanding the net working capital of a company. In the scenario of a company in a high-risk industry, understanding which assets are tangible and intangible helps to assess its solvency and risk.

Determining which assets are operating assets and which assets are non-operating assets is important to understanding the contribution of revenue from each asset, as well as in determining what percentage of a company’s revenues comes from its core business activities.

We hope you’ve enjoyed reading CFI’s guide to the different types of assets. To keep advancing your career, the additional resources below will be useful: