Personal Assets vs. Business Assets: An Overview
An asset is anything of value or a resource of value that can be converted into cash. Individuals, companies,and governments own assets. For a company, an asset might generate revenue, or a company might benefit in some way from owning or using the asset.For individuals, assets include investments such as stocks, bonds, and equity in a home. When assets are greater than liabilities, both a business and an individual are considered to have positive equity/net worth.
Key Takeaways
- An asset is something containing economic value and/or future benefit.
- An asset can often generate cash flows in the future, such as a piece of machinery, a financial security, or a patent.
- Personal assets may include a house, car, investments, artwork, or home goods.
- For corporations, assets are listed on the balance sheet and netted against liabilities and equity.
Personal Assets
Personal assets are things of present or future value owned by an individual or household. Common examples of personal assets include:
- Cash and cash equivalents,certificates of deposit, checking, savings, and money market accounts, physical cash, and Treasury bills
- Property orland and any structure that is permanently attached to it
- Personal property—boats, collectibles, household furnishings, jewelry, and vehicles
- Investments—annuities, bonds, the cash value of life insurance policies, mutual funds, pensions, retirement plans (IRA, 401(k), 403(b), etc.), and stocks
Your net worth is calculated by subtracting your liabilities from your assets. Essentially, your assets are everything you own, and your liabilities are everything you owe. A positive net worth indicates that your assets are greater in value than your liabilities; a negative net worth signifies that your liabilities exceed your assets (in other words, you are in debt).
Business Assets
For companies, assets are things of value that sustain production and growth. For a business, assets can include machines, property, raw materials, and inventory—as well as intangibles such as patents, royalties, and other intellectual property.
The balance sheet lists a company's assets and shows how those assets are financed, whether through debt or through issuing equity. The balance sheet provides a snapshot of howwell a company's management is using its resources. There are two types of assets on a typical balance sheet.
Current Assets
Current assets are assets that can be converted into cash within onefiscal yearor one operating cycle. Current assets are used to facilitate day-to-day operational expenses and investments.
Examples of current assets include:
- Cash and cash equivalents:Treasury bills, certificates of deposit, and cash
- Marketable securities:Debt securities or equity that are liquid
- Accounts receivables:Money owed by customers to be paid in the short-term
- Inventory: Goods available for sale or raw materials
Fixed Assets
Fixed assets are long-term assets, or non-current assets. Tangible fixed assetsare those assets with a physical substance and are recorded on the balance sheet and listed asproperty, plant, and equipment(PP&E). Intangible fixed assets arethose long-term assets without a physical substance, for example, licenses, brand names, and copyrights.
Examples of fixed assets include:
- Vehicles (such as company trucks)
- Office furniture
- Machinery
- Buildings
- Land
The two key differences with business assets are that non-current assets (like fixed assets)cannot be convertedreadily to cash to meet short-term operational expenses or investments. Conversely, current assetsare expected to be liquidated within one fiscal year or one operating cycle.
Key Differences
The primary difference between personal assets and business assets is who they belong to, and that results in the differentiation of the assets. Personal assets are those that belong to individuals. These are more traditional assets, such as stocks, bonds, and real estate.
These types of assets are used to grow the net worth of an individual. The monetary gain from these assets can be used to pay for retirement, a child's college education, or to purchase real estate. Having a larger quantity of personal assets also makes it easier to obtain loans as well as favorable terms on these loans.
Personal assets can also include antiques, art, electronics, and other valuables.
Business assets, on the other hand, are assets owned by businesses. While businesses can also own stocks, bonds, and real estate, their assets are typically larger in nature and used specifically for the business. This can include machinery, other equipment, land, buildings, factories, and vehicles. It can also include intellectual property that gives the business a competitive advantage.
Business assets also need to be included in financial statements and have a specific way they need to be accounted for, which includes marking their historical cost and any depreciation. Personal assets do not need to be reported every year on taxes nor do they need to be accounted for.
Are Houses an Asset?
Yes, houses are considered to be assets. Even though most homes have a mortgage, which is a form of debt, which is a liability, a home itself is considered to be an asset. Homes should be viewed in two ways: first, the home, which is the asset, primarily the equity in it, and second, the mortgage, which is a liability.
Is It Better to Have Assets or Cash?
In general, it is better to have assets than cash. Cash can lose value over time due to inflation, whereas assets can appreciate, primarily if these assets are investments, such as stocks, bonds, and real estate. Investing in these types of assets is making your money "work" for you, so that your money grows over time, whereas with cash, your money won't grow, but rather it will lose value.
What Is an Example of an Asset?
Examples of assets include stocks, bonds, homes, vacation properties, investments/equity in businesses/start-ups, real estate investment trusts (REITs), certificates of deposit (CDs), money market funds, and land.
The Bottom Line
The build-up of assets is generally considered to be a pursuit of monetary wealth. As individuals build up their assets, such as homes, investments, and equity, they are considered to be improving their financial status, primarily if this is in conjunction with lowering liabilities, such as debt. Businesses must prudently use their assets to generate profits, whereas not efficiently using assets can hurt a business.
