Tangible Asset

Key Takeaways

  • Assets are of two types: Tangible and Intangible
  • Tangible assets can be seen, felt and assigned a monetary value
  • Tangible assets are of two types: Short term (current) and long term

What are Tangible Assets?

A tangible asset is an asset, in accounting, which is a physical entity. Tangible assets can be seen and felt unlike intangible assets, in accounting, such as goodwill, and intellectual property like patents. They have a definable monetary value that can be assigned to them.

Company’s assets can be of two types: tangible and intangible assets. Tangible assets are the common types of assets and are present in the balance sheet. For most industries, they are the main class of assets. They are physical entities and are easier to understand. Intangible assets on the other hand don’t have physical form but they are also important to the company.

Short Term and Long-term Tangible Assets

Tangible assets can be of two types: Short term or current assets and long-term assets which can also be observed from the balance sheet. The assets section of the balance sheets consists of both types of tangible assets. Current assets are the assets that usually get used or consumed within one operating cycle. Examples of the most liquid current tangible assets are accounts receivable, cash and marketable securities. These current tangible assets are used in calculating the company’s quick ratio.

Along with the most liquid current assets, all other current assets are used in calculating the company’s current ratio which denotes how well the company’s current liabilities are covered. Current tangible assets may not always have a physical form but can be valued easily.

Long term tangible assets are also sometimes called fixed assets. These include assets like manufacturing equipment, manufacturing plants, real estate properties, office properties, vehicles and office supplies.

Tangible assets are entered in the balance sheet as the cost incurred by the company to acquire them. The value to long term tangible assets usually get reduced over time because of depreciation. Depreciation reduces the value of an asset by a defined amount over time. Since current assets are liquidated with a year or one operating cycle, they don’t need to be depreciated