What is the difference between tangible and intangible assets?

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A:

Tangible Assets

Tangible assets are physical assets such as land, vehicles, equipment, machinery, furniture, inventory, stock, bonds and cash. These assets are the backbone of a company that keep it in production but are not available to customers. Tangible assets are at risk of damage either from naturally occurring incidents, theft or accidents.

The two types of tangible assets are current and fixed. Current assets are inventory, or items a company turns into cash usually by the end of the year. These assets can be used as liquidation to save a company from debt problems or as financial aid. Fixed assets are physical items that will not be sold at any point in the business. These assets include machinery, equipment, vehicles or land, and they are needed to run the business continually.

Intangible Assets

Intangible assets are nonphysical, such as patents, trademarks, franchises, goodwill and copyrights. Depending on the type of business, intangible assets may include Internet domain names, performance events, licensing agreements, service contracts, computer software, blueprints, manuscripts, joint ventures, medical records, permits and trade secrets. Intangible assets add to a company's possible future worth and can be much more valuable than its tangible assets.

For more information, read "What is the difference between goodwill and tangible assets?"

Both tangible and intangible assets are recorded on a balance sheet. A balance sheet outlines a company's balance of income and spending over time to determine its debt to earnings (D/E) ratio. The balance sheet allows a company to consider future expansion and gives banks, investors and vendors the ability to decide a company's worth for possible loans or credits.

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