What is a Fixed Asset ? What Are the Main Types of Assets? || Business Partner Nepal.

What is a Fixed Asset ?

A fixed asset is a long-term tangible piece of property that a firm owns and uses in its operations to generate income. Fixed assets are not expected to be consumed or converted into cash within a year.

>>>>

What Are the Main Types of Assets?

Classification of Assets: Convertibility

If assets are classified based on their convertibility into cash, assets are classified as either current assets or fixed assets.

1. Current Assets

Current assets are assets that can be easily converted into cash and cash equivalents (typically within a year). Current assets are also termed liquid assets and examples of such are:

• Cash
• Cash equivalents
• Short-term deposits
• Stock
• Marketable securities
• Office supplies

2. Fixed or Non-Current Assets

Non-current assets are assets that cannot be easily and readily converted into cash and cash equivalents. Non-current assets are also termed fixed assets, long-term assets, or hard assets. Examples of non-current or fixed assets include:

• Land
• Building
• Machinery
• Equipment
• Patents
• Trademarks

Classification of Assets: Physical Existence

If assets are classified based on their physical existence, assets are classified as either tangible assets or intangible assets.

1. Tangible Assets

Tangible assets are assets that have a physical existence (we can touch, feel, and see). Examples of tangible assets include:

• Land
• Building
• Machinery
• Equipment
• Cash
• Office supplies
• Stock
• Marketable securities

2. Intangible Assets

Intangible assets are assets that do not have a physical existence. Examples of intangible assets include:

• Goodwill
• Patents
• Brand
• Copyrights
• Trademarks
• Trade secrets
• Permits
• Corporate intellectual property

Classification of Assets: Usage

If assets are classified based on their operational usage, assets are classified as either operating assets or non-operating assets.

1. Operating Assets

Operating assets are assets that are required in the daily operation of a business. In other words, operating assets are used to generate revenue.  Examples of operating assets include:

• Cash
• Stock
• Building
• Machinery
• Equipment
• Patents
• Copyrights
• Goodwill

2. Non-Operating Assets:

Non-operating assets are assets that are not required for daily business operations but can still generate revenue. Examples of non-operating assets include:

• Short-term investments
• Marketable securities
• Vacant land
• Interest income from a fixed deposit

Importance of Asset Classification

Classifying assets is important to a business. For example, understanding which assets are current assets and which are fixed assets is important in understanding the net working capital of a company. In the scenario of a company in a high-risk industry, understanding which assets are tangible and intangible will help it determine its solvency and risk. Determining which assets are operating assets and which assets are non-operating assets is important to understanding the contribution of revenue from each asset. Therefore, knowing how to classify assets is integral to business success.