Types Of Assets In Accounting Top 3 Types With Examples

Types of Assets in Accounting

Assets are the resources owned by individuals, companies, or governments expected to generate future cash flows over a long period. There are broadly three types of asset distribution – 1) based on Convertibility (Current and Noncurrent Assets), 2) Physical Existence (Tangible and Intangible Assets), and 3) Usage (Operating and Non-Operating Assets).

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Type of Assets based on Convertibility

Classification of assetsClassification Of AssetsAsset classification is a systematic process of assigning the assets to their respective class or group. Such grouping of the assets is done based on the common characteristics possessed by them. Like current assets and fixed assets are categorized as per the duration the company holds these assets.read more based on how easily an asset gets converted into cash. Convertible assets are further classified as:

#1 – Current Assets

This type of accounting assets i.e., Current assetsCurrent AssetsCurrent assets refer to those short-term assets which can be efficiently utilized for business operations, sold for immediate cash or liquidated within a year. It comprises inventory, cash, cash equivalents, marketable securities, accounts receivable, etc.read more, is the short-term assets that easily get converted into cash using sales or consumption in normal business operations within one year. A list of current assets includes:

Cash & cash equivalentsAccount receivablesAccount ReceivablesAccounts receivables is the money owed to a business by clients for which the business has given services or delivered a product but has not yet collected payment. They are categorized as current assets on the balance sheet as the payments expected within a year.
read moreInventoryMarketable SecuritiesMarketable SecuritiesMarketable securities are liquid assets that can be converted into cash quickly and are classified as current assets on a company’s balance sheet. Commercial Paper, Treasury notes, and other money market instruments are included in it.read morePrepaid ExpensesPrepaid ExpensesPrepaid expenses refer to advance payments made by a firm whose benefits are acquired in the future. Payment for the goods is made in the current accounting period, but the delivery is received in the upcoming accounting period.read more

#2 – Noncurrent Assets

This type of accounting asset is long-term assets (or Fixed AssetsOr Fixed AssetsFixed assets are assets that are held for the long term and are not expected to be converted into cash in a short period of time. Plant and machinery, land and buildings, furniture, computers, copyright, and vehicles are all examples.read more) that are not meant to be sold or consumed and will benefit the company for several years in the future. I.e., these assets will serve the business for more than one year. Basic noncurrent assets include:

Tangible Fixed AssetsTangible Fixed AssetsTangible assets are assets with significant value and are available in physical form. It means any asset that can be touched and felt could be labeled a tangible one with a long-term valuation.read more (like Property, Plant, and Machinery (PP&E))Other Tangible Assets (like long term investments)Intangible AssetsIntangible AssetsIntangible Assets are the identifiable assets which do not have a physical existence, i.e., you can’t touch them, like goodwill, patents, copyrights, & franchise etc. They are considered as long-term or long-living assets as the Company utilizes them for over a year. read more (like patents, copyrights, and Goodwill)

Type of Assets based on Physical Existence

Classification of assets is based on the existence of assets in physical form, or it lacks physical substance.

#1 – Tangible Assets

Assets with physical existence are tangible assets. These are considered measurable assets because their value can be easily identified based on their current condition and expected future benefits. Tangible assets include current assets like cash, inventory, marketable securities, etc., and noncurrent assetsNoncurrent AssetsNon-current assets are long-term assets bought to use in the business, and their benefits are likely to accrue for many years. These Assets reveal information about the company’s investing activities and can be tangible or intangible. Examples include property, plant, equipment, land & building, bonds and stocks, patents, trademark.read more like property, plant, equipment, etc.

#2 – Intangible Assets

Type of Assets based on Usage

The classification of assets is based on usage, i.e., either assets are used in day-to-day business operationsBusiness OperationsBusiness operations refer to all those activities that the employees undertake within an organizational setup daily to produce goods and services for accomplishing the company’s goals like profit generation.read more or accumulated for some specific purpose.

#1 – Operating Assets

Assets that are required in the daily operations are the operating assets. This type of accounting asset is used in every necessary business operation, i.e., from production to sales—E.g. Cash, inventory, plant, machinery, etc.

#2 – Non-Operating Assets

This type of accounting asset is not meant to be applied in day-to-day business operations but is accumulated as future investments or contingent situations. I.e., these assets generate income but have negligible participation in the basic functionality of a business. E.g., Land purchased to develop a new building for head office, or shares purchased considering future price appreciation.

Conclusion

Understanding the type of accounting assets helps place the correct assets in their respective asset blocks. In addition, the knowledge helps create an accurate positional statement for the company. The balance sheetBalance SheetA balance sheet is one of the financial statements of a company that presents the shareholders’ equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner’s capital equals the total assets of the company.read more is the most important financial document for an investor where assets are divided into various blocks (like current or noncurrent, tangible, or intangible) for its easy understanding and simplified research. E.g., an investor can easily perform various ratio-analysis if assets are properly categorized.

To get a clear picture of various types of assets and their classification criteria, refer to the following table: