Asset Types and Their Definitions
What Are Four Examples of Assets?
The four main categories of assets examples are:
- Short Term (or Current) Assets: These are assets that a company expects to be able to convert into cash within one year.This includes cash and cash equivalents, inventory, accounts receivable, and some prepaid expenses.
- Financial Investments: Investments in assets and securities, such as stocks and bonds, also count towards a company’s assets.
- Fixed-Assets: These are long-lived items like equipment and real estate. In contrast to short term assets, fixed assets are expected to last beyond a year. A fixed asset is often a capital expenditure. Although the business will incur the expense year one, the expense will generally be incurred evenly over the useful lifetime of the asset on financial statements.
- Intangible Assets: Resources with value but without substance fall into this category, such as trademarks, patents, and intellectual property.
What Are Considered Assets?
Equity refers to the amount of money contributed by shareholders, plus retained earnings (or losses).
Liabilities are balances that effectively reduce a company’s overall spending power, such as outstanding loans or debt.
For accounting purposes, a company’s value is equal to their assets minus their liabilities.
When a company spends cash on an asset, the value of the “assets”section of the balance sheet remains the same.
As an example, if a company spends $10,000 in cash on a new vehicle, their cash is reduced by $10,000 but they gain an asset worth the same amount.
Before accounting for depreciation, the total value of their assets remains the same.
Types of Assets and Liabilities
The two main types of assets and liabilities are long-term and current.
The economic value provided by long-term assets is typically used to pay long-term liabilities, and the economic value provided by current assets is used to pay current liabilities.
For example, large loans may be paid with revenue-generating PP&E, while dividends are paid with cash.
Assets in Accounting
When company accountants draw up forms, assets are compiled and listed in the balance sheet along with liabilities and equity.
Assets are divided into two main categories, long-term and current, and then further categorized by type.
It is important for a company to make sure that its total assets exceed its total liabilities.
Types Of Fixed Assets
Fixed assets are long-term assets with a significantly long economic lifespan.
Plants, property, and equipment, or PP&E, is one of the most ubiquitous examples of fixed-assets.
Depending on the industry of the business in question, they may have a lot or only a few fixed-assets.
Intangible assets are non-physical items which nonetheless provide a company with economic value. Examples would be patents, intellectual property, trademarks, and so on. Intangible assets are almost universally long-term assets rather than current assets.
Intangible assets may comprise a lot or a little of a company’s net worth, depending on the industry.
Valuation of Different Types of Assets
Companies and investors must determine the fair market value of certain assets differently than others depending on type.
PP&E and most other physical assets are easy to value since the cost of acquisition and repairs are known.
However, intangible assets such as intellectual property need more subjective valuation methods, such as calculated intangible value (CVI).
Types Of Current Assets
Current assets are a specific type of asset that will provide economic value to their owning company for or within one year. As such they are also often the most liquid assets.
Some types of current assets are cash and cash equivalents, short-term investments, inventory (if applicable), and accounts receivable.
Types Of Liabilities
Just like assets, liabilities can be either long-term or short term. Some common long-term liabilities are bank loans, deferred income taxes, and bonds payable.
Common current liabilities are accounts payable, short-term debts, dividends, and non-deferred income taxes.
Liabilities are recorded on the balance sheet along with assets and equity.