Investing What Are Financial Assets? By Mike Price Updated on November 30, 2021 Reviewed by Robert C. Kelly Reviewed by Robert C. Kelly Robert Kelly is managing director of XTS Energy LLC, and has more than three decades of experience as a business executive. He is a professor of economics and has raised more than $4.5 billion in investment capital. learn about our financial review board In This Article View All In This Article Definition and Examples of Financial Assets How Financial Assets Work Types of Financial Assets Financial vs. Real vs. Intangible Assets Photo: SolStock / Getty Images Definition Financial assets are liquid assets such as stock equity or bank deposits that assume their value from a contractual claim or ownership on an underlying asset. Key Takeaways Financial assets are liquid assets that derive their value from a contract or agreement.Financial assets are different from real assets because of their non-physical nature.The most common personal financial assets are checking accounts and retirement investments, as well as stocks and bonds for the average investor. Definition and Examples of Financial Assets Financial assets are liquid assets such as stock equity or bank deposits that assume their value from a contractual claim or ownership on an underlying asset. An underlying asset can be anything from a commodity to a piece of real estate. These real, often tangible assets are attached to financial assets, such as commodity futures or real estate investment trusts (REITs), respectively. The most common type of personal financial assets are bank deposits and investment portfolios. In the U.S., according to recent data, the majority of personal financial assets are held specifically in checking accounts, with the second most-used financial asset being retirement accounts. Note Financial assets are considered liquid because they generally can be sold easily but can also lose value over time. If a company or individual has high liquidity, that means they have enough assets to meet financial obligations. Businesses have financial assets as well, including those in the form of accounts receivable and notes receivable. This information is listed on a company’s balance sheet. To get a better understanding of what is classified as a financial asset, let’s take a look at Home Depot’s balance sheet as of May 2, 2021, per the U.S. Securities and Exchange Commission (SEC). In this case, the two main financial assets are cash and cash equivalents as well as receivables. Cash is all of The Home Depot’s deposits, down to the store level, while cash equivalents are short-term investments that can be converted to cash in under three months, like a money market account. Receivables is any money customers and borrowers owe to The Home Depot. The above-mentioned assets are financial assets because the value is derived from the lease contract. Your personal balance sheet probably looks similar to The Home Depot’s, just less complicated. Cash and cash equivalents are your checking and savings accounts as well as any brokerage or retirement accounts. Receivables is any money you’ve loaned out to people. How Financial Assets Work As mentioned, financial assets are any assets that derive value from a contract or other claim. More specifically, according to the International Financial Reporting Standards (IFRS), a financial asset is any asset that is: Cash An equity instrument of an entity A contractual right to receive cash or assets—known as accounts receivable—or exchange financial assets or liabilities with another entity A contract that can be settled in the entity’s own equity instruments To fully understand how financial assets work, it’s best to explain the types of financial assets in detail, as each one functions differently. Types of Financial Assets Below is a breakdown of the most common types of financial assets, specifically for investors. Cash and Cash Equivalents Cash and cash equivalents include any savings deposits, certificates of deposit (CDs), money market deposit accounts, and money market funds. These assets are considered safe, strong investments by the federal government. A CD, for example, is a type of savings account offered by banks and credit unions that typically earns interest at a fixed rate. For deposit accounts, you sign an agreement with the financial institution and get monthly statements stating the value in the account. Accounts are generally insured up to $250,000 by the FDIC, and the type of deposit account is determined by how often funds can be withdrawn. For example, checking or demand deposit accounts can be used whenever you want, while CDs lock up your cash for a preset period. Accounts Receivable Generally, accounts receivable are short-term business assets where a customer signs a contract, guaranteeing they will pay for the service or product in less than a year. Unlike the other financial assets, the value of receivables is based on what is owed and the probability of payment. This type of asset is used in the balance sheets of many businesses as well as universities, including Cornell University. Stocks Stocks are often considered the riskiest financial assets, but they also offer the greatest potential for growth. Stocks represent ownership in a publicly traded company, which means when you buy a company’s stock, you become part owner of that business. Bonds Bonds are a type of fixed-income investment in which the bond issuer borrows money from an investor. They function similarly to loans in that the borrowing organization promises to pay the bond back at an agreed-upon date. They enable companies to finance short-term projects and tend to offer modest returns. Financial Assets vs. Real Assets vs. Intangible Assets The other two types of assets you’ll find on a personal or business balance sheet are called real assets and intangible assets. Real assets are assets that are tangible, or physically existing, such as real estate, commodities, or equipment. Intangible assets are things like patents, trademarks, or goodwill that do not have a physical substance or financial nature. Note When it comes to tax season, the IRS requires real and financial assets to be reported together as tangible assets. As mentioned, financial assets are generally the most liquid of the three. For example, bank deposits and stocks can be converted to cash within a week in most cases, while real estate and equipment has to be listed before it can be sold. The other thing that generally differentiates financial assets is how their value is derived. Real assets have some level of intrinsic value based on their nature as a physical asset. Intangible assets are generally recorded at cost. Financial asset values, then, can vary based on supply and demand in the marketplace where they trade. 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. Federal Reserve Bank of St. Louis. "What Types of Financial Assets Do People Hold?" U.S. Securities Exchange Commission. "Part I – Financial Information. Item 1. Financial Statements. The Home Depot, Inc. Consolidated Balance Sheets (Unaudited)." PWC. "Financial Instruments Under IFRS: A Guide Through the Maze." Page 36. U.S. Securities and Exchange Commission. "Beginners’ Guide to Asset Allocation, Diversification, and Rebalancing." FDIC. "Consumer Assistance Topics: Deposit Accounts." Cornell University. "Diversity of Financial Affairs Accounting: Accounts Receivable." IRS. "Publication 551 (12/2018), Basis of Assets."