Types of Assets
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Ayra PelenioTypes of Assets
Uploaded by
Ayra PelenioTypes of Assets
Assets can be classified based on a number of criteria. For companies, the correct classification is critical
to financial reporting and evaluating the business’s financial health. Typically, assets are valued by the
expected future cash flows they represent in their current condition, according to the IFRS.
Personal: Soft personal assets, such as intellect, wit or a winning smile are different than personal
financial assets, which contribute to an individual’s or household’s net worth. Examples of personal
financial assets include cash and bank accounts, real estate, personal property such as furniture and
vehicles, and investments such as stocks, mutual funds and retirement plans.
Business: Business assets deliver value to a company because they can be used to produce goods, fund
operations and drive growth. Assets include physical items such as machinery, property, raw materials
and inventory, and intangible items like patents, royalties and other intellectual property. Companies
account for their assets on their balance sheet and categorize them based on a set of criteria that reflect
their liquidity, or how readily they can be converted to cash, as well as whether they are physical or
nonphysical assets and how they’re used to derive value.
Convertible: Convertibility, or liquidity, refers to how readily a business can convert an asset to cash.
Assets that are likely to be turned into cash within one fiscal year or operating cycle are called current
assets. While any asset can be converted into cash within 12 months if the price is sufficiently
discounted, current assets only include assets that are expected to be converted into cash within 12
months.
Current assets include:
Cash and cash equivalents, such as treasury bills and certificates of deposits.
Marketable securities, such as stocks, bonds and other types of securities.
Accounts receivable (AR), or sales to customers on credit that must be paid in the short term.