Types of Assets

Assets are the resources owned by individuals, companies, or governments expected to generate future cash flows over a long period. There are broadly three types of asset distribution – 1) based on Convertibility (Current and Noncurrent Assets), 2) Physical Existence (Tangible and Intangible Assets), and 3) Usage (Operating and Non-Operating Assets).

Understanding the types of accounting assets helps place the correct assets in their respective asset blocks. In addition, the knowledge helps create an accurate positional statement for the company. The balance sheet is the most important financial document for an investor where assets are divided into various blocks (like current or noncurrent, tangible, or intangible) for its easy understanding and simplified research.

1. Types of assets refer to asset types. Assets are resources belonging to people, businesses, or governments and are anticipated to produce long-term financial flows. There are different ways to distribute assets based on convertibility (current and noncurrent assets) or tangible and intangible assets' physical existence.
2. Operating assets are those that are needed for everyday operations. Every important business process, from manufacturing to sales, uses this accounting asset, such as cash, inventory, plant, machinery, etc.
3. This accounting asset is accumulated as potential investments or unforeseen circumstances rather than used in regular corporate activities. In other words, while these assets produce income, they have a small role in how a corporation runs daily. 
4. An investor's most crucial financial document is the balance sheet, which breaks down assets into many categories (such as current or noncurrent, tangible or intangible) for easier comprehension and streamlined research. 

The different type of assets classes for an organization or an individual is an important factor to understand if they intend to manage their finances efficiently. Let us understand the different types through the discussion below.

The major sub-categories of types of assets in accounting are:

1. Based On Convertibility
2. Based On Physical Existence
3. Based On Usage

Let us understand each of them in detail-

Based on Convertibility

Classification of assets based on how easily an asset gets converted into cash. Convertible assets are further classified as:

#1 - Current Assets

This type of accounting assets i.e., Current assets, is the short-term assets that easily get converted into cash using sales or consumption in normal business operations within one year. A list of current assets includes:

• Cash & cash equivalents
• Account receivables
• Inventory
• Marketable Securities
• Prepaid Expenses

#2 - Noncurrent Assets

This type of accounting asset is long-term assets (or Fixed Assets) that are not meant to be sold or consumed and will benefit the company for several years in the future. I.e., these assets will serve the business for more than one year. Basic noncurrent assets include:

• Tangible Fixed Assets (like Property, Plant, and Machinery (PP&E))
• Other Tangible Assets (like long term investments)
• Intangible Assets (like patents, copyrights, and Goodwill)

Based on Physical Existence

Types of assets classes is based on the existence of assets in physical form, or it lacks physical substance.

#1 - Tangible Assets

Assets with physical existence are tangible assets. These are considered measurable assets because their value can be easily identified based on their current condition and expected future benefits. Tangible assets include current assets like cash, inventory, marketable securities, etc., and noncurrent assets like property, plant, equipment, etc.

#2 - Intangible Assets

Assets that do not physically exist but contribute much towards general operations and survival of the entity and thus are often considered to be the intellectual properties. Due to their nonphysical or intellectual existence, it becomes very difficult to assign them some value—E.g. Goodwill, Patents, Trademarks, Copyrights, etc.

Based on Usage

The types of assets in accounting is based on usage, i.e., either assets are used in day-to-day business operations or accumulated for some specific purpose.

#1 - Operating Assets

Assets that are required in the daily operations are the operating assets. This type of accounting asset is used in every necessary business operation, i.e., from production to sales—E.g. Cash, inventory, plant, machinery, etc.

#2 - Non-Operating Assets

This type of accounting asset is not meant to be applied in day-to-day business operations but is accumulated as future investments or contingent situations. I.e., these assets generate income but have negligible participation in the basic functionality of a business. E.g., Land purchased to develop a new building for head office, or shares purchased considering future price appreciation.

This article has been a guide to Types of Assets. Here we explain different Types of Assets along with examples and their accounting in detail. You may learn more about Accounting from the following articles.

• Top 4 Examples of Intangible Assets
• Top 13 Financial Assets Types
• Assets vs. Liabilities | Compare
• Complete List of Assets