An asset is anything of value or a resource of value that can be converted into cash. Individuals, companies, and governments own assets. For a company, an asset might generate revenue or the company might benefit in some way from owning or using the asset.
Examples of personal assets include:
- Cash and cash equivalents, certificates of deposit, checking, and savings accounts, money market accounts, physical cash, Treasury bills
- Property or land and any structure that is permanently attached to it
- Personal property – everything that you own such as boats, collectibles, household furnishings, jewelry, vehicles
- Investments – annuities, bonds, the cash value of life insurance policies, mutual funds, pensions, retirement plans, (IRA, 401(k), 403(b), etc.) stocks
Your net worth is calculated by subtracting your liabilities from your assets. Essentially, your assets are everything you own, and your liabilities are everything you owe. A positive net worth indicates that your assets are greater in value than your liabilities; a negative net worth signifies that your liabilities exceed your assets.
The balance sheet lists a company's assets and shows how those assets are financed whether through debt or through issuing equity. The balance sheet provides a snapshot of how well a company's management is using their resources. There are two types of assets on a typical balance sheet.
Current assets are assets that can be converted into cash within one fiscal year or one operating cycle. Current assets are used to facilitate day-to-day operational expenses and investments.
Current Assets include:
Fixed assets are noncurrent assets that a company uses in its production or goods and services that have a life of more than one year. Fixed assets are recorded on the balance sheet and listed as property, plant, and equipment (PP&E). Fixed assets are long-term assets and are referred to as tangible assets, meaning they can be physically touched.
Examples of fixed assets include:
- Vehicles like trucks
- Office furniture
The two key differences with business assets are noncurrent assets (like fixed assets) cannot be converted readily to cash to meet short-term operational expenses or investments. Conversely, current assets, are expected to be liquidated within one fiscal year or one operating cycle.
For more on this topic, please read "How the Income Statement and Balance Sheet Differ?"