Financial Asset

A Financial Asset is a non-physical asset that has value because it represents a claim or interest in a physical asset or is legal tender that by law can be exchanged for physical assets. Cash, equity in a company, bonds, and IOUs, are examples of financial assets.

A financial asset can, of course, be a physical asset, inasmuch as a dollar bill can be held. However, the value of the $1 bill is not the physical object itself but, rather, is what it represents. Said another way, a $1 bill, a $20 bill, or even a $100 bill has no inherent value above and beyond being paper that one could write on, blow their nose with, or burn for heat. Of course, the $1, $20, or $100 bill, if used for any of those purposes, would have very little value.

Most but not all assets held as investments are considered financial assets. Examples of assets held as investments, but which are not financial assets include land, inventory, and commodities. Intangible assets are also not considered to be financial assets.

A financial asset may or may not be a liquid asset, but all liquid assets are financial assets.