EXPLAIN ALL TYPES OF ASSETS AND LIABILITIES

EXPLAIN THE ACCOUNTING EQUATION IN DETAIL WITH AN

EXAMPLE

EXPLAIN THE RULES OF ACCCOUNTING, BOTH

TRADITIONAL & MODERN

ASSETS

An asset is a resource or property having a monetary/economic

value possessed by an individual or entity, which is capable to
generate some future economic benefit. Assets are generally
brought in business to benefit from them and to increase the value
of a business. In simple language, it means anything that a person
“owns” say a house or equipment. In the accounting context, an
asset is a resource that can generate cash flows. The assets are
recorded on the balance sheet. They are found on the right-hand
side of the balance sheet and can also be referred to as “Application
of Funds”. The assets include furniture, machinery, accounts
receivable, cash, investments, etc. We shall discuss various Types of
Assets in this article.

Classification of Assets
Assets are generally classified in three ways:

1. Convertibility: Classifying assets based on how easy it is to

convert them into cash.
2. Physical Existence: Classifying assets based on their physical
existence (in other words, tangible vs. intangible assets).

3. Usage: Classifying assets based on their business operation

usage/purpose.

Convertibility
If assets are classified based on their convertibility into cash,
assets are classified as either current assets or fixed assets. An
alternative expression of this concept is short-term vs. long-term
assets.

1. Current Assets

Current assets are assets that can be easily converted into cash and cash equivalents
(typically within a year). Current assets are also termed liquid assets and examples of such
are:

 Cash
 Cash equivalents

2. Fixed or Non-Current Assets

Non-current assets are assets that cannot be easily and readily converted into
cash and cash equivalents. Non-current assets are also termed fixed assets, long-
term assets, or hard assets. Examples of non-current or fixed assets include:

 Land
 Building

Physical Existence

If assets are classified based on their physical existence, assets are classified as
either tangible assets or intangible assets.

1. Tangible Assets

Tangible assets are assets that have a physical existence (we can touch, feel, and see
them). Examples of tangible assets include:

 Land
 Building

2. Intangible Assets

Intangible assets are assets that do not have a physical existence. Examples of intangible
assets include:

 Goodwill
 Patents
Usage

If assets are classified based on their usage or purpose, assets are classified as
either operating assets or non-operating assets.

1. Operating Assets

Operating assets are assets that are required in the daily operation of a business. In
other words, operating assets are used to generate revenue from a company’s core
business activities. Examples of operating assets include:

 Cash
 Stock

2. Non-Operating Assets:

Non-operating assets are assets that are not required for daily business operations
but can still generate revenue. Examples of non-operating assets include:

 Short-term investments
 Marketable securities

LIABILITIES