An asset is any item that has a value, some of which will be recorded on the balance sheet. Assets could be tangible or intangible. They are recorded on the balance sheet as assets with a positive value and liabilities with a negative value.
A balance sheet consists of assets, liabilities, and net worth. Your assets include everything you own that has monetary value.
Your liabilities are your debts—amounts you owe to others. Your net worth is the amount left when what is owed is subtracted from the value of what is owned—that is, if all the assets were sold at the listed value and all debts were paid in full.
Your net worth is the accurate measure of your financial wealth.
The assets section of the balance sheet lists items valued at their fair market value—what a willing buyer would pay a willing seller, not the amount initially paid or what it might be worth a year from now. Classifying assets as monetary, tangible, or investment assets are valuable.
Types of Assets
Monetary Assets
They are also known as liquid assets or cash equivalents and include cash and low-risk near-cash items that can be readily converted to a currency with little or no loss in value, such as savings accounts. They are primarily used for maintenance of living expenses, emergencies, savings, and payment of bills.
Tangible Assets
Tangible assets are personal property whose primary purpose is to provide maintenance of one’s everyday lifestyle. Tangible assets, such as furniture and vehicles generally depreciate over time.
Investment assets
These assets include tangible and intangible items with relatively long life and high cost that are acquired for the monetary benefits they provide, such as generating additional income and appreciation or increasing value. Examples include stocks and bonds. Investment assets generally appreciate and are dedicated to maintaining one’s future level of living.
Following are some examples of each kind of asset.
Monetary Assets
- Cash: It includes cash on hand, savings accounts, savings bonds, certificates of deposit, and money market accounts.
- Pending Tax Refunds.
- Money owed to you by others.
Tangible Assets
- Automobiles, motorcycles, boats, bicycles.
- House, condominium, mobile home.
- Household furnishings and appliances.
- Personal property (jewelry, furs, tools, clothing)
- Other “big ticket” items.
Investment Assets:
- Stocks, bonds, mutual funds, gold, artwork, etc.
- Life insurance and annuities (cash values only)
- Real property (and anything fixed to it)
- Personal and employer-provided retirement accounts.
What is a Good Asset to have on a Balance Sheet?
Good assets are those that are capable of generating cash flow. They can be used to improve financial performance through their cash flows.
Good assets in a balance sheet can also be classified into three primary categories: tangible and intangible. Tangible assets have a physical presence, such as buildings or equipment, while intangible assets are those that do not have a physical presence, such as intellectual property or goodwill. Real estate is a tangible asset with land and structures on it.
Conclusion: There’s a Lot You Can Learn from Looking at Your Balance Sheet and How They are Changing over Time
The balance sheet has been around for centuries and is one of the essential tools in the arsenal of financial statements.
Personal financial planning aims to improve your net worth, but it’s also essential to understand how your assets are doing and what you need to do to improve.
Balance sheets can help you with both of these things. Looking at your balance sheet over time will give you an idea about your financial health and guide your decision-making process for future changes.
