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What are Active Assets?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 26 August 2016
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    Conjecture Corporation
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Active assets are assets which are used on a daily basis to contribute to the generation of revenue for a business. In a simple example of active assets, someone who owns a mustard company would consider the building used for manufacturing along with the equipment used to prepare and package the mustard to be active assets. Likewise, the recipe for the company's mustard would be an active asset even though it is not tangible property, because it also is used daily to make money for the business.

In accounting, active assets are counted just like regular assets in the balance sheets. They may appreciate or depreciate in value, depending on the nature of the asset. Real property, for example, tends to appreciate in value over time, while manufacturing equipment depreciates with time and use. An accountant can determine whether or not assets should be considered active and how they should be valued.

The defining characteristic of an active asset is that it plays a functional role in the revenue stream of the business. It can be real property, physical equipment, or something like a patent or copyright. Loss of the asset could potentially interfere with the function of the business until it could be replaced. The company must also work to maintain the asset so that it will continue to be functional and useful, and expenses related to maintenance of the asset would be considered business expenses for purposes of accounting and taxation.

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Depending on the business, the nature of an active asset can vary widely. Active assets can include things like trucks, earth moving equipment, tools, manufacturing equipment, structures, computers and other electronics, and facilities such as kitchens, kilns, and workshops. If it can be demonstrated that an asset is used daily as part of the revenue-producing work of the business, it is treated as an active asset.

This term should not be confused with the investment strategy known as active asset allocation. Although the two terms are similar, they deal with very different types of assets. In the case of active asset allocation, assets are moved around within a portfolio to address changing conditions in the market with the goal of maximizing returns. This may be done by an individual or a brokerage acting on behalf on an individual or institution which wants to use investments to generate funds for various purposes, ranging from retirement accounts to funding of scholarships.

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