Loading the player...

What is an 'Asset'

An asset is a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit. Assets are reported on a company's balance sheet, and they are bought or created to increase the value of a firm or benefit the firm's operations. An asset can be thought of as something that in the future can generate cash flow, reduce expenses, improve sales, regardless of whether it's a company's manufacturing equipment or a patent on a particular technology.


An asset represents a present economic resource of a company to which it has a right or other type of access that other individuals or firms do not have. A right or other access is legally enforceable, which means that a company can use economic resource at its discretion, and its use can be precluded or limited by an owner. For an asset to be present, a company must possess a right to it as of the date of the financial statements. An economic resource is something that is scarce and has the ability to produce economic benefit by generating cash inflows or decreasing cash outflows.

Assets can be broadly categorized into short-term (or current) assets, fixed assets, financial investments and intangible assets. Assets are recorded on companies' balance sheets based on the concept of historical cost, which represents the original cost of the asset, adjusted for any improvements or aging. Historical cost is also called the book value.

Current Assets

Current assets are short-term economic resources that are expected to be converted into cash within one year. Current assets include cash and cash equivalents, accounts receivable, inventory, and various prepaid expenses. While cash is easy to value, accountants periodically reassess the recoverability of inventory and accounts receivable. If there is persuasive evidence that collectability of accounts receivable is impaired or that inventory becomes obsolete, companies may write off these assets.

Fixed Assets

Fixed assets are long-term resources, such as plants, equipment and buildings. An adjustment for aging of fixed assets is made based on periodic charges called depreciation, which may or may not reflect the loss of earning power of a fixed asset. Generally accepted accounting principles (GAAP) allow depreciation under two broad methods: the straight-line method assumes that a fixed asset loses its value in proportion to its useful life, while the accelerated method assumes that the asset loses its value faster in its first years of use.

Financial Assets

Financial assets represent investments in the assets and securities of other institutions. Financial assets include stocks, sovereign and corporate bonds, preferred equity, and other hybrid securities. Financial assets are valued depending on how the investment is categorized and the motive behind it.

Intangible Assets

Intangible assets are economic resources that have no physical presence. They include patents, trademarks, copyrights and goodwill. Accounting for intangible assets differs depending on the type of asset, and they can be either amortized or tested for impairment each year.

  1. Historical Cost

    A measure of value used in accounting in which the price of an ...
  2. Impaired Asset

    A company's asset that is worth less on the market than the value ...
  3. Active Asset

    An asset that is used by a business in its daily or routine operations. ...
  4. Other Current Assets - OCA

    Other current assets (OCA) is a category of a firm's assets that ...
  5. Impairment

    Impairment is an accounting principle that describes a permanent ...
  6. Amortization Of Intangibles

    A tax term relating to the practice of deducting the cost of ...
Related Articles
  1. Investing

    Reviewing Assets On The Balance Sheet

    A firm uses its assets to generate sales and bottom-line profits for shareholders. A healthy company will continually grow its assets, which stems from leftover profits that are reinvested back ...
  2. Investing

    Goodwill vs Other Intangible Assets: What's the Difference?

    "Intangible" assets don't possess physical substance. Yet they are quanitfiable, and of great importance to any business.
  3. Investing

    How Is Impairment Loss Calculated?

    Impairment loss is the decrease in an asset’s net carrying value that exceeds the future undisclosed cash flow it should generate.
  4. Managing Wealth

    How to Calculate Your Tangible Net Worth

    You can calculate your tangible net worth with a simple equation.
  5. Investing

    Breaking Down The Balance Sheet

    Knowing what the company's financial statements mean will help you to analyze your investments.
  6. Investing

    Ben Graham on Interpreting Financial Statements

    Seven pieces of advice from Benjamin Graham on understanding financial statements.
  7. Investing

    An Introduction To Depreciation

    Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
  8. Investing

    Asset Turnover Ratio

    Site Edit explains: The asset turnover ratio is a measure of a company's ability to use its assets to generate sales or revenue, and is a calculation of the amount of sales or revenue generated ...
  1. What is the difference between current assets and fixed assets?

    Learn what current assets and fixed assets are, examples of current and non-current assets, and the differences between these ... Read Answer >>
  2. The difference between fixed and current assets

    Learn the differences between fixed assets such as land and current assets such as cash, and how these types of assets appear ... Read Answer >>
  3. How do you account for changes in the market value of various fixed assets?

    Understand how to account for changes in the fair market value of a company's fixed assets. Learn what accounting methods ... Read Answer >>
  4. How does one amortize intangible assets?

    Understand what distinguishes intangible assets and how companies are required to amortize their value over time to recover ... Read Answer >>
  5. How do you write off impaired assets from the financial statement?

    Learn what an impaired asset is and how it effects a company's financial statements. Understand how an accountant writes ... Read Answer >>
  6. Are stocks real assets?

    Learn why stocks are classified as financial assets, not real assets. Understand the properties that determine whether an ... Read Answer >>
Hot Definitions
  1. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  2. Entrepreneur

    An Entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture. ...
  3. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  4. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  5. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  6. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
Trading Center