Assets are anything tangible or intangible that adds value when owned by a business. They are of economic benefit too, as they increase the value of a business. Assets can either be expressed in cash or can be converted to cash.
Assets are of two types:
- Current Assets
- Non-Current Assets.
Current Assets (also known as short term assets) are those that can be converted to cash in a very short period of time and it provides benefits in the short term, say less than a year. For example, stock, debtors, prepaid expenses, cash, etc.
Non-Current Assets (also known as long term assets) are those that take longer periods of time to get converted to cash and they provide benefits for a longer period of time usually more than a year. These assets are further classified into Tangible (Physical existence), Intangible (Non-physical existence) and Fictitious assets (Imaginary).
Tangible Assets – Machinery, Land, etc.
Intangible Assets – Trademarks, Patents, Know-how, etc.
Fictitious Assets – Goodwill, it is compensation paid for the reputation established by a business. It can be realised only at the time of the acquisition of a business. Hence, it is termed as an imaginary asset.