What are assets? We all have them, but how are they defined? We took a look at what is involved.
A Definition
Assets are resources that have value and that an individual, company or organization own. In the context of accounting and finance, we generally divide assets into two categories. These are current assets and fixed assets.
Current v Fixed
Current assets are those that we expect to be converted into cash within one year or the operating cycle of a business. Examples of current assets include cash and cash equivalents, accounts receivable, inventory, and short-term investments.
Fixed assets, also known as long-term assets or property, plant, and equipment (PP&E), are those that we do not intend for sale. Instead, they exist to provide a benefit to a business for more than one year. Examples of fixed assets include land, buildings, equipment, and vehicles.
What Are Assets? Their Importance
They are an important component of a company’s balance sheet. They provide a snapshot of its financial position at a particular point in time. The total value of such items is equal to the sum of all current and fixed assets. They represent the total value of resources that a company has available to use in its operations.
In personal finance, they may include items such as a home, car, investment portfolio, or savings account. In general, assets represent anything of value that an individual or organization owns or controls. They act as an important measure of financial well-being and stability.
What Are Assets? Their Allocation
Allocation describes how you decide to distribute your funds among several investment types, commonly referred to as asset classes, such as:
Bonds. A type of lending. In essence, you are lending someone money when you purchase a bond. At the time the bond matures—or the specified timeframe at which the bond can be redeemed—you get periodic interest payments and return the lent amount.
Stocks. A stake in a publicly traded or privately held corporation. When you invest in business shares, you become a shareholder and are eligible to receive dividend payments, if and when they are made.
Anything that is in the form of cash or that can readily be turned into cash in the event that it is required is referred to as cash or cash equivalents.
