What is an asset?
An asset is an item that has a monetary value, such as property, equipment or investments. Assets owned by individuals include houses, jewelry and pensions, while a company’s assets include machinery and office furniture.
Types of assets
In business terms, assets can fall into one of several categories:
· Fixed. These assets are usually long-term investments for a business, such as computer equipment or machinery. An item can be deemed a fixed asset if it will benefit a company for more than one financial year.
· Current. A company’s inventory (the stock they are going to sell,) the levels of cash they have in the bank and money that is due to be paid by clients are all examples of current assets.
· Financial. Bonds, shares and dollar bills are all examples of financial assets. Although a bond may not seem like an asset because it’s just a piece of paper, the fact that it entitles the holder to interest payments gives it value.
· Intangible. Assets don’t necessarily have to be physical. A patent that makes a company’s invention exclusive can have value, as can trademarks that prohibit other businesses from using a certain name. Brands, and the public recognition that go along with them, can also be counted as an asset.
Assets versus liabilities
While assets help a business to make money, liabilities represent costs including taxes, wage bills, and debts. Subtracting total liabilities from total assets represents a company’s net income – or net loss.
This calculation can also be used by individuals to establish their net worth. To do this, you would add up the total value of a person’s assets (including their home, cars, savings and furnishings) and deduct any debts they may have (such as their mortgage, car loan repayments and credit card balance.)