Building Your Business Becoming an Owner What Are Assets? Definition & Examples of Assets By Susan Ward Susan Ward Twitter Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses. learn about our editorial policies Updated on September 13, 2022 Fact checked by Hans Jasperson Fact checked by Hans Jasperson Hans Jasperson has over a decade of experience in public policy research, with an emphasis on workforce development, education, and economic justice. His research has been shared with members of the U.S. Congress, federal agencies, and policymakers in several states. learn about our editorial policies Share Tweet Pin Email Photo: Image (c) Echo / Getty Images Assets are anything of monetary value owned by a person or business. Learn about how assets work, how they can be categorized into different types, and why keeping track of them is important for both individuals and organizations. What Are Assets? Assets can be anything of value owned by individuals or organizations, and they can be categorized in different ways. Personal assets usually include cash and cash equivalents; real estate and land; personal property such as cars, boats, and jewelry; and investments. For organizations, assets usually help sustain production and growth, and they're usually categorized and expressed in terms of their cash value on financial statements. How Assets Work Keeping track of assets is an essential part of running a business, but it's important for both individuals and organizations to take an inventory of them. If you want to protect yourself or your business, you need to know what assets you have and how much they're worth in order to get them insured. In addition, lenders may take many of your assets into consideration when deciding to approve a loan, and they may even be used as collateral. Note Assets are key to determining net worth. A simple way to calculate net worth is to subtract liabilities (what you owe) from assets (what you own). Determining the value of assets beyond cash and cash equivalents usually needs to be done by a professional appraiser. There are two common ways of determining the value of assets: the cost method and the market value method. The cost method is a simple way of valuing an asset because it uses its original purchase price. However, the market value, or mark to market method, can be a more accurate way of determining assets' value because it can decrease or increase from the original purchase price over time. This method bases the value on the price an asset would sell for in the open market. Types of Assets When it comes to businesses, assets are usually classified by convertibility (current or fixed assets), physical existence (tangible or intangible assets), and usage (operating or non-operating assets). Convertibility: Current and Fixed Assets Convertibility refers to how easy the assets can be turned into cash. Current assets are items that are currently cash or expected to be turned into cash within one year. For a business, they may include cash, inventory, and accounts receivable. Fixed assets are those tangible physical assets acquired to carry on the business of a company with a life exceeding one year. Examples may include land, buildings, vehicles, boats, aircraft, tools, machinery, computer hardware, mobile phones, and other equipment. Physical Existence: Tangible and Intangible Assets When looking at the physical existence of assets, they're usually categorized as tangible and intangible. Tangible assets exist in physical form. They usually include cash, investments, land, buildings, inventory, cars, trucks, boats, or other valuables. Intangible assets don't exist in physical form. They may include items such as brand names, distribution networks, patents, proprietary processes and methodologies, and copyrights. Current and fixed assets usually fall into the category of tangible assets. Intangible assets do not appear on balance sheets but, depending on the business, they may make up a substantial part of the asset value of a business. Note Classification of assets as tangible or intangible is not necessarily a straightforward process. For example, the oil and gas industry has special accounting rules for classifying petroleum reserves as either tangible or intangible, depending on the stage of development. Operating and Non-Operating Assets When assets are classified by their usage, they're usually categorized as operating and non-operating. Operating assets are those that are required in the daily operation of a business, such as cash, stock, buildings, machinery, equipment, copyrights, and patents. Non-operating assets may generate revenue but aren't required for a business to run. They include short-term investments, vacant property and land, and interest income. Key Takeaways Assets are anything of monetary value owned by a person or business.It's important for individuals and organizations to keep track of assets. An appraiser can determine the value of assets beyond cash and cash equivalents. Assets can be categorized by convertibility (current or fixed assets), physical existence (tangible or intangible assets), and usage (operating or non-operating assets). Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. PricewaterhouseCoopers. "Financial Reporting in the the Oil and Gas Industry: International Financial Reporting Standards," Page 18. Accessed Jan. 24, 2021.