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How are assets classified in accounting?


Deutsch: Goldbarren mit einem Gewicht von 12,5...

In my previous post, I introduced assets. Now let’s see how assets are classified in accounting.

There are two major asset classifications 1) non-current and current, 2) tangible and intangible. Let’s have a brief look at each.

Non-current versus current assets

A non-current assets is one which typically cannot be converted into cash within one year. The classic example of a non-current asset is plant, property and equipment. Current assets normally convert into cash within one year e.g. receivables from customers, inventories. This non-current and current classification is used in the financial statements of most organisations.

Tangible versus intangible assets

This one is a little more tricky to understand, and it is something not normally seen on financial statements. As you might guess, a tangible asset is one which you can see and touch i.e it physically exists. Typically examples are again, plant, property and equipment, but also inventories are a tangible asset. Money due from customers is also arguably a tangible asset, as it does exist as money albeit somewhere outside the business. Intangible assets are those which do not physically exist, but yet have a value. This value may arise from intellectual or legal rights. For example, trademarks, patents, in-house software or knowledge built up through research and development are intangible assets. The accounting standard which governs intangible assets is IAS 38, and it gives some examples:

  • computer software
  • patents
  • copyrights
  • motion picture films
  • customer lists
  • mortgage servicing rights
  • licenses
  • import quotas
  • franchises
  • customer and supplier relationships
  • marketing rights.

 

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About martinjquinn

I am an accounting academic, accountant and author based near Dublin, Ireland.

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