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An asset is a resource controlled by a business with the expectation of producing a future economic benefit.

Assets are employed to generate cash flows and are recorded on the balance sheet, and represent the uses of a company’s funds

Businesses can further categorize them into current and non-current, which is dependent on the expected time taken to convert the asset into cash. Their physical existence and intended usage in the business also provides a basis for further categorization.

Classification of Assets

There are three types of assets which are generally classified according to the following:  

  • Liquidity: Based on how easy it is to convert assets into cash.
  • Physical Existence: Based on the physical nature of an asset (i.e. tangible versus. intangible assets).
  • Usage: Based on the usage or purpose for business operations.

The classification is shown in the diagram below:

Types of Assets

Liquidity

Physical Existence

Usage

Current

Non-Current Tangible Intangible Operating

Non-Operating

Assets are classified based on how easily they can be converted into cash. Accordingly, assets are grouped as either current assets or non-current assets. Alternatively, it can be expressed as short-term versus long-term assets.

Current Assets

If expected to be converted into cash, consumed through business operations or discharged in less than 12 months, then they are classified as current assets.

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Non-current Assets

Non-current assets, also called long-term assets or hard assets, are expected to be employed productively by a business for more than one year and are not readily convertible to cash.

Physical Existence

Based on their physical existence, assets can be classified as either tangible or intangible.

Tangible Assets

Tangible assets are assets that one can see, feel or touch, and thus have a physical existence. Common examples include vehicles, buildings and property, plant and equipment (PP&E).

Intangible Assets

Intangible assets have no physical presence and are typically difficult to measure in value and meaningful useful economic life. Common examples include patents, copyrights and trademarks.

Usage

Assets that are classified in terms of their usage or purpose for business operation are recognized as operating assets. Other assets which are not used in daily business operations are classified as non-operating assets.

Operating Assets

Operating assets are used in day-to-day business operations. Simply put, operating assets are employed by a company to produce products or services used to generate revenue.

Non-operating assets

Non-operating assets are not employed for daily business operations but can still generate economic benefits.

 The following table summarizes the types of assets:

Current Asset

Non-current Asset Tangible Asset Intangible Asset Operating Asset Non-operating Asset

Cash

Land Land Goodwill Cash Goodwill

Bank Balance

Road Road Patents Bank Balance

Patents

Investments

Building Building Brand Inventory

Inventory

Furniture Furniture Trademark Stocks

Stock

Plant Plant Copyright

Prepaid Exp

Receivables

Machinery Machinery Receivables

Prepaid Exp.

Equipment Equipment

Plant

Bills Receivable

Cash

Machinery

Inventory/Stock

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