What is an asset?
An asset is something that a person or business owns or controls with the expectation that it will provide a future benefit. They typically lose value over time as their usefulness reduces. Assets are reported in a company’s balance sheet.
Types of assets
There are four asset types: fixed, current, financial investments, and intangible.
Fixed assets have an expected life of more than a year. This includes equipment, machinery, or buildings. Some fixed assets like buildings and equipment depreciate over time. That is, they lose their use value as they age. There are two ways this happens: in proportion to its useful life over several years or they lose more value in the first few years of its use.
Current assets are easily used or sold within the year. Current assets can be cash, or converted into cash in that period. This includes cash equivalents, accounts receivable, inventory, marketable securities, etc. Accountants calculate the recoverable potential of accounts receivable and inventory periodically. If inventory or accounts receivable become obsolete, companies may write them off as bad debt or as a one-time charge.
Financial assets are investments in the assets and securities of other businesses or institutions. These include stocks, bonds, equity, and hybrid security. Financial assets are valued according to market supply and demand.
Intangible assets are not physically present. They can be trademarks, patents, copyrights, and goodwill. Intangible assets are amortized each year.