Assets may be classified in many ways. The principal distinction normally made for business purposes is between:
- fixed assets and
- current assets.
Other business subdivisions include intangible assets, that is, those assets which, though not visible, add to the earning power of the business, e.g. goodwill, patents, copyrights, etc. (also called invisible assets ); liquid assets, which are a subdivision of current assets and also categories labelled trade investments , quoted investments , etc.
In the balance sheet of a company certain divisions are required by law, which varies from country to country.
Current assets
Those are assets continually turned over in the course of a business during normal business activity. Examples: debtors, stock, cash and work in progress. The phrase net current assets (also called working capital) is often used and refers to the total of current assets less the total of current liabilities.
Fixed assets
Assets which are purchases for continued and long-term use in earning profit in a business. Examples: land, buildings, machinery, etc. They are written off against profits over their anticipated life by charging an annual amount calculated so as to eliminate the original cost (historical cost), less scrap value, over that period. (see depreciation).
These are also called capital assets in management accounting, especially when intangibles are considered.
See also
