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Overview of Tangible Asset
Definition of
Tangible Asset
What is a Tangible Asset? A Tangible Asset is a physical resource owned by a business that has a finite monetary value and can typically be seen and touched. These assets are used in the course of business operations to generate revenue or are held for investment or sale. Common examples include land, buildings, machinery, equipment, vehicles, furniture, fixtures, and inventory. Tangible assets are recorded on a company's Balance Sheet and, with the exception of land, are usually subject to depreciation over their useful life. This contrasts with intangible assets, which lack physical substance.
Activities Related to
Tangible Asset
Here is a list of Tangible Asset related activities:Â
Acquiring physical assets (purchasing land, buildings, equipment), Recording asset purchases at their cost, Calculating and recording depreciation expense for assets like machinery and vehicles, Performing physical asset tracking and inventory counts, Maintaining assets to ensure operational readiness, Valuing assets for financial reporting on the Balance Sheet, Disposing of assets at the end of their useful life (selling or scrapping), and Insuring assets against loss or damage.
These activities ensure tangible assets are properly accounted for and managed throughout their lifecycle.
The Importance of
Tangible Assets
Tangible Assets are important because they often form the backbone of a company's operations and can represent a significant portion of its total value. For manufacturing businesses, machinery and equipment are essential for production. For retail businesses, inventory is a primary tangible asset. These assets are crucial for generating revenue and supporting day-to-day activities. Proper accounting for tangible assets, including recording their acquisition cost and subsequent depreciation, is vital for accurate financial statements, effective asset management, and informed business decisions regarding investment and replacement.
Key Aspects of
Tangible Asset
Physical Substance
They can be physically touched, seen, and measured (e.g., buildings, machinery, vehicles, inventory).
Used in Operations or Held for Sale
Tangible assets are either used in the normal course of business to produce goods or services (like Property, Plant, and Equipment - PP&E) or held for sale (like Inventory).
Subject to Depreciation (Usually)
Most tangible assets (except land) have a limited useful life and their cost is allocated as an expense over this period through depreciation.
Balance Sheet Item
Reported on the company's Balance Sheet, contributing to the calculation of total assets.
Concepts Related to
Tangible Asset
Tangible Assets are a major category of Assets, distinguished from Intangible Assets which lack physical form. Long-lived tangible assets used in operations are often grouped as Property, Plant, and Equipment (PP&E). The process of expensing their cost over time is called Depreciation (while Amortization applies to intangibles). Inventory is a type of tangible asset held for sale. Their initial value is determined by the Cost Principle.
Tangible Asset
in Action:
The Adventures of Coco and Cami
Coco buys a new oven for her sandwich shop, and Cami invests in a high-quality espresso machine. Professor A explains these are Tangible Assets – physical items their businesses own and use.
Learn with Coco and Cami how these physical assets are recorded, how their value is accounted for over time through depreciation, and why they are important for their operations.