Broadly speaking, an asset is anything that has value and can be owned or used to produce value, and can theoretically be converted to cash. In business, assets can take several forms -- equipment, patents, investments, and even cash itself. Here's a rundown of the different types of assets a business can possess, and the type of assets that are considered to be plant assets.
Different types of assets
There are several categories and subcategories of assets a business can have:
- Current assets: These are assets that are either already in cash, or can be reasonably expected to be converted to cash within a year. In addition to cash and equivalents, this also consists of short-term investments, accounts receivable, inventory, and prepaid expenses.
- Long-term investments: This refers to investments intended to be held for longer than one year, and can take several forms. If a company buys securities such as common stock or bonds, they fall into this category and so do other long-term holdings that are not used in the company's day to day operations.
- Fixed assets: Also referred to as PPE (property, plant, and equipment), or simply "plant assets," this consists of a company's assets that are continuously used in day-to-day operations. We'll discuss some examples of plant assets in the next section.
- Intangible assets: The other three categories mentioned are all forms of tangible assets, meaning that they represent actual property, and have a reasonably clear monetary value. Intangible assets, on the other hand, are assets such as patents, copyrights, brand names, and trademarks, just to name a few. These assets do add value to a business, but the specific valuation of intangible assets can be difficult to determine.
In accounting, a plant asset refers to any physical asset with a useful life greater than one year that is actively used in a business's revenue-generating operations. There are four main categories of plant assets:
- Land: The only form of plant assets that cannot be depreciated, this category consists of assets such as building sites and vacant lots.
- Land improvements: This includes any improvements (other than buildings) made to owned land assets. For example, if a company paves a parking lot for its employees on a lot it owns, this would be considered to be a land improvement.
- Buildings: As the name implies, this includes actual buildings a company owns, such as factories and offices.
- Equipment: This includes the usable physical assets other than land and buildings. This can include office furniture, vehicles used in business operations, and manufacturing equipment, just to name a few.
It's important to note that the value of plant assets (other than land) depreciates over time, and each type of asset has a specific "useful life" that is defined by the IRS.
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