Tangible asset definition

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What is a Tangible Asset?

A tangible asset is physical property - it can be touched. The term is most commonly associated with fixed assets, such as machinery, vehicles, and buildings. It is not used to describe shorter-term assets, such as inventory, since these items are intended for sale or conversion to cash. Tangible assets comprise the key competitive advantage of some organizations, especially if they use the assets efficiently to produce sales.

Tangible assets are frequently used as collateral for loans, since they tend to have robust, long-term valuations that are valuable to a lender. These assets typically require a significant amount of maintenance to uphold their values and productive capabilities, and likely require insurance protection.

Characteristics of Tangible Assets

The key characteristics of tangible assets are as follows:

  • Physical existence. Tangible assets can be seen and touched (e.g., buildings, equipment, vehicles).

  • Measurable value. Tangible assets have a definable monetary value that is recorded on financial statements.

  • Depreciable. With the exception of land, tangible assets lose value over time due to wear and tear (depreciation).

  • Used in operations. Tangible assets are often used to generate revenue in business operations.

  • Can be bought, sold, or replaced. Businesses can purchase, sell, or replace tangible assets as needed.

  • Subject to damage or loss. Tangible assets can be damaged, stolen, or destroyed (e.g., fire, accidents, theft). Businesses often buy insurance to protect them.

  • Listed on the balance sheet. Tangible assets are aggregated under the Property, Plant, and Equipment line item on the balance sheet.

Related AccountingTools Courses

Fixed Asset Accounting

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Presentation of Tangible Assets

Tangible assets are classified as fixed assets, and so appear in the long-term assets section of a firm’s balance sheet. They may be aggregated into a single summary number, or listed within several asset classifications, such as machinery and equipment or furniture and fixtures. Fixed assets are paired with an accumulated depreciation contra account, which reduces the fixed asset balance by the amount of depreciation charged to-date against all fixed assets on the reporting entity’s books. An example of this presentation appears next.

Intangible Assets

The opposite of a tangible asset is an intangible one, which is not physically present. Examples of intangible assets are copyrights, patents, and operating licenses.