Accounting treats assets differently according to their useful life. Assets such as property, plant and equipment, long-term investments and certain intangibles that are expected to contribute to earnings for multiple years are referred to as long-lived, non-current or long-term assets.
Accounting Treatment of Assets
An asset is an economic resource that can be owned and controlled to produce value. Assets can be categorized into current and non-current assets. Current assets such as inventory, accounts receivable and short-term investments are expected to be consumed or converted into cash within one year. Non-current, or long-lived, assets such as property, plant and equipment are expected to last for longer than one year. All assets are recorded on the balance sheet and listed under each of these two categories.
Property, Plant and Equipment
Property, plant and equipment, sometimes referred to as "PP&E", consists of physical assets used in operations of a business such as land, buildings and equipment. The value recorded on the balance sheet reflects the capital expenditures related to acquiring or building such assets. This includes expenses such as the purchase price, permits, freight, installation and other associated costs.
Long-term investments consist of stocks, bonds and other securities acquired with the intent of holding them for an extend period. These investments are recorded on the balance sheet using one of several methods: fair value, gains and losses to equity and amortized cost. If a company elects to value a long-term investment using the fair value approach, the decision is irrevocable.
Intangible assets are economic resources that are not physical in nature. Examples include patents, copyrights, trademarks, brands, franchise licenses, government licenses, goodwill and related items. Intangibles that are recorded at cost when acquired but do not appear on the balance sheet if they arise internally. Intangible assets that are expected to contribute to earnings for more than one year are classified as non-current assets.