Definition of Assets: Types, Classification, Examples, and Their Roles

Understanding Assets – It should be noted that business is not only about capital. Because, a business that is built must have prepared everything to the fullest. Starting from the initial capital, the employees needed, and the production site or shop. To fulfill all of this, business owners must have sufficient funds. If you don’t have funds, then how can a business be built and also develop as we think?

In a business, every property or asset owned can be said to be an asset. But unfortunately, many business owners are unable to maintain their assets so that the business they run has many obstacles and even experiences losses and goes bankrupt. Therefore, you need to know what is meant by an asset and how important it is for your business.

For information only, assets are one factor that is quite important in the success of a business. Therefore, every business owner must include this in making a COA or Chart of Account.

Definition of Assets

Before getting to know more about assets and understanding what types of assets are. It would be better if we first understood the meaning of assets in general. We must understand these definitions or definitions to avoid misunderstandings or misconceptions that can make us wrong in assessing what an asset is.

So, asset is a term that is interpreted into several meanings and differentiated based on the subject. For the first definition, we will take it from the Big Indonesian Dictionary, in the KBBI it contains that assets are wealth in the form of money or other tangible objects.

Meanwhile, according to Wikipedia, an asset is a normal debit balance or an economic resource that can provide business benefits in the future. The definition of other assets disclosed by several experts in a journal. The following is a full explanation.

Definition of Assets According to Experts

Assets are one of the most important concepts in accounting. In addition to the general understanding as explained above. A number of experts as well as government regulations are also used as sources to find out what is meant by an asset. Following are some of these examples:

a. Hidayat revealed that the definition of assets is goods that are legally divided into movable and immovable objects, tangible and intangible.
b. Munawir revealed that an asset is a resource or facility that has economic value and functions as a support in measuring the price to get it or the fair value of the company.
c. According to PP RI No. 24 of 2005 reveals that the definition of assets is divided into two, namely current assets and non-current assets or non-current assets.

However, there are at least three things that underlie a tangible object like an asset, including:

1. Ownership or Ownership: Assets that are categorized based on property owned by a person but can be converted into money or other objects intended to develop a business.
2. Economic Value or Economic Value: Assets that have economic value. In other words, an object that can be equivalent to a certain nominal amount of money.
3. Resource or Resources: Assets that a company has and have the benefit of providing income in the future.

Types of Assets According to Physical Existence

Assets do not only have one type, but are still classified first and then filled with various types of assets according to their class. The first classification is a classification in the form of types of assets according to their physical existence. If according to physical existence, assets are further divided into two, namely tangible assets and intangible assets.

Tangible assets consist of anything that can be felt and seen by the naked eye. Among other things, land, houses, gold, money, office equipment, machinery, cash, securities, merchandise, and other objects that we can see with the naked eye. While intangible assets are the opposite of tangible assets. Among other things, patents, intellectual property, good will, trademarks, permits, copyrights, and so forth.

Types of Assets According to Convertibility

The next classification of assets is divided into two more specific types, including current assets and non-current assets. Here is the full explanation:

1. Current Assets

Current assets are one of the most liquid types of assets. In other words, these assets are the easiest and quickest type of asset to convert into cash. Current assets have relatively short cycles or turnover and benefits. Usually, the period of current asset turnover is one year or within one company’s normal cycle. Due to the very fast turnover of assets, the benefits of current assets are also classified as running out quickly. However, after running out, these assets will be replaced by other assets or assets. This condition continues until the end of the period. Examples of current assets that we can easily find are short-term investments, cash, accounts receivable, supplies, inventories, notes receivable, prepaid expenses, and accrued income.

2. Non-Current Assets

Non-current assets are assets that have cycles and useful periods of more than one year. Non-current assets are divided into three parts, including:

a. Fixed assets

Fixed assets are assets that have a physical form or shape. Fixed assets are usually used and utilized by companies for production activities, be it goods or services. So the purpose of owning fixed assets is not to be sold again, but to be used for company operations. Fixed assets can be sold by the company if the period or useful life of the assets is running out, damaged, and problematic. Examples of assets included in the type of fixed assets are buildings, machinery, land, buildings, vehicles, and others.

b. Intangible Assets

Apart from fixed assets, in the category of non-current assets there are also types of intangible assets. This type of asset is an asset that is invisible or physically invisible but has value and benefits for the company itself. Some examples of intangible assets are patents, building use rights, goodwill, lease rights, patents, and others.

c. Long term investment

Investment is an asset used with the aim of obtaining wealth growth. In this case, the investment made is a long-term investment. In other words, the investment in question includes all long-term investments made by a company. Either in the past or in the present. For example, company A invests in company B, so company A must always record assets in the form of these investments in their balance sheet reports.

Examples of Assets by Use

In the second asset classification, category division is carried out by looking at the function and purpose of having assets for a company or individual. Assets here are divided into two categories, including:

a. Operational assets are assets or objects needed in the operational activities of a company in order to generate income from various business activities. For example, inventory, cash, buildings, machinery, equipment, patents, and so on.
b. Non-operating assets are wealth that is not used in daily business activities. However, it is still useful for generating income. For example, vacant land, short-term investments, interest income, and securities.

Asset Classification Matters

For medium to large business scales, understanding asset classification is one of the most important things. Companies must be able to divide, which assets are tangible and which are intangible assets. This is done in order to determine the risks that might occur and their solvency. Even so, it is possible that startup businesses or small businesses and individuals are also advised to understand how to classify assets.

Asset Properties

Not only the definition and types, you also need to understand what properties an asset has in general. There are three main characteristics of an asset, namely resources, ownership, and economic value. An exact asset is a resource that can be utilized in the future. Not only that, assets also clearly have economic value. This is because assets can be traded easily. Then, assets can also reflect a person’s wealth which can be converted into cash or other forms of wealth.

Asset Use

Apart from being important to own, of course an asset also has benefits and uses that can benefit its owners. You can use assets in two forms of use, namely operational assets and non-operational assets.

1. Operational Assets

This type of asset is an asset that can be used for daily needs. Be it for personal or business purposes. Assets can also be used for other needs, namely copyrights, business equipment, machinery, merchandise, and so on.

2. Non-Operational Assets

In contrast to operational assets, non-operational assets are assets that are not used for daily needs. For example, interest on deposits, vacant land, securities, and also investments.

The Importance of Assets in a Business

If we look at the definition of assets in general, then we can conclude that assets are assets that are very useful for the everyday life of the owner. As for more importantly, can these assets be used and utilized as a medium that will generate greater income? The answer is of course yes. Because every object that is useful and valuable for business, it should be included in the asset section. Simply put, assets will become one of the important things in a business if they include one of the following three factors:

1. Can generate income in the future
2. Has more value in making products
3. Can facilitate business and make it easier to make products

An object or cash will not be called part of an asset if it cannot generate profits for the company itself. However, it can still lighten the burden on the company. For example, cash cannot be called an asset if it is used to pay debts within a certain period of time. Do you understand what an asset is?

This is the discussion regarding the definition of assets, types, and categories that are important for you to understand. Especially for business owners, this one material is indeed one of the things that must be understood, so they can classify their assets. That way, businesses and companies will run smoothly and can continue to grow.