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Capital asset
 
 
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The term capital asset has three unrelated technical definitions, and is also used in a variety of non-technical ways.



Non-technical and ambiguous usage
A well-known financial accounting
Financial accountancy

Differences between managerial accounting and financial accountingFinancial accountancy is the field of accountancy concerned with the preparation of financial statements for decision makers, such as Shareholders, vendor s, banks, employees, government agencies, owners, and other stakeholders....
 textbook advises that the term be avoided except in tax accounting
Tax accounting in the United States

U.S. tax accounting refers to accounting for tax purposes in the United States. Unlike most countries, the United States has a comprehensive set of accounting principles for tax purposes, prescribed by tax law, which are separate and distinct from Generally Accepted Accounting Principles....
 because it is used in so many different senses, not all of them well-defined. For example it is often used as a synonym for fixed assets or for investments in securities
Security (finance)

A security is a fungible, negotiable instrument representing financial value. Securities are broadly categorized into debt securities , and stock securities; e.g., common stocks....
.

A common non-technical usage occurs when people ask that employees or the environment or something else be treated as a capital asset.






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The term capital asset has three unrelated technical definitions, and is also used in a variety of non-technical ways.

  • In financial economics
    Financial economics

    Financial economics is the branch of economics concerned with "the allocation and deployment of economic resources, both spatially and across time, in an uncertain environment" ....
    , it refers to any asset
    Asset

    In business and accounting, assets are everything of value that is owned by a person or company. It is a claim on the property your income of a borrower....
     used to make money, as opposed to assets
    Asset

    In business and accounting, assets are everything of value that is owned by a person or company. It is a claim on the property your income of a borrower....
     used for personal enjoyment or consumption. This is an important distinction because two people can disagree sharply about the value of personal assets
    Asset

    In business and accounting, assets are everything of value that is owned by a person or company. It is a claim on the property your income of a borrower....
    , one person might think a sports car is more valuable than a pickup truck, another person might have the opposite taste. But if an asset
    Asset

    In business and accounting, assets are everything of value that is owned by a person or company. It is a claim on the property your income of a borrower....
     is held for the purpose of making money, taste has nothing to do with it, only differences of opinion about how much money the asset
    Asset

    In business and accounting, assets are everything of value that is owned by a person or company. It is a claim on the property your income of a borrower....
     will produce. With the further assumption that people agree on the probability distribution of future cash flows, it is possible to have an objective Capital asset pricing model
    Capital asset pricing model

    In finance, the Capital Asset Pricing Model is used to determine a theoretically appropriate required rate of return of an asset, if that asset is to be added to an already well-diversified Portfolio , given that asset's non-Diversification risk....
    . Even without the assumption of agreement, it is possible to set rational limits on capital asset value.
  • In governmental accounting, it is defined as any asset
    Asset

    In business and accounting, assets are everything of value that is owned by a person or company. It is a claim on the property your income of a borrower....
     used in operations with an initial useful life extending beyond one reporting period. Generally, government managers have a "stewardship" duty to maintain capital assets under their control. See International Public Sector Accounting Standards
    International Public Sector Accounting Standards

    International Public Sector Accounting Standards are accounting standards for use by public sector entities around the world in the preparation of financial statements....
     for details.
  • In US tax accounting
    Tax accounting in the United States

    U.S. tax accounting refers to accounting for tax purposes in the United States. Unlike most countries, the United States has a comprehensive set of accounting principles for tax purposes, prescribed by tax law, which are separate and distinct from Generally Accepted Accounting Principles....
    , it is defined as any property other than a list of exceptions. The main exceptions are anything held for sale, and any real estate or depreciable property used in business. Almost everything you own and use for personal purposes, pleasure or investment is a capital asset. If something is a capital asset for tax purposes, gains or losses on sale or disposition are capital gains
    Capital gain

    A capital gain is a profit that results from investments into a capital asset, such as stocks, bonds or real estate, which exceeds the purchase price....
     or capital losses
    Capital gain

    A capital gain is a profit that results from investments into a capital asset, such as stocks, bonds or real estate, which exceeds the purchase price....
    . For individuals, however, capital losses
    Capital gain

    A capital gain is a profit that results from investments into a capital asset, such as stocks, bonds or real estate, which exceeds the purchase price....
     on property held for personal use are generally not deductible. See the IRS publication for details.


Non-technical and ambiguous usage


A well-known financial accounting
Financial accountancy

Differences between managerial accounting and financial accountingFinancial accountancy is the field of accountancy concerned with the preparation of financial statements for decision makers, such as Shareholders, vendor s, banks, employees, government agencies, owners, and other stakeholders....
 textbook advises that the term be avoided except in tax accounting
Tax accounting in the United States

U.S. tax accounting refers to accounting for tax purposes in the United States. Unlike most countries, the United States has a comprehensive set of accounting principles for tax purposes, prescribed by tax law, which are separate and distinct from Generally Accepted Accounting Principles....
 because it is used in so many different senses, not all of them well-defined. For example it is often used as a synonym for fixed assets or for investments in securities
Security (finance)

A security is a fungible, negotiable instrument representing financial value. Securities are broadly categorized into debt securities , and stock securities; e.g., common stocks....
.

A common non-technical usage occurs when people ask that employees or the environment or something else be treated as a capital asset. In this context it means something managers have a responsibility to maintain, and to report changes in value as gains or losses.

Capital assets should not be confused with the capital
Capital requirement

The capital requirement is a bank regulation, which sets a framework on how banks and depository institutions must handle their Capital . The categorization of assets and capital is highly standardized so that it can be risk weighted....
 a financial institution is required to hold. This capital
Capital requirement

The capital requirement is a bank regulation, which sets a framework on how banks and depository institutions must handle their Capital . The categorization of assets and capital is highly standardized so that it can be risk weighted....
 is computed from the right-hand side of the balance sheet
Balance sheet

In financial accounting, a balance sheet or statement of financial position is a summary of a person's or organization's balances. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year....
 while assets
Asset

In business and accounting, assets are everything of value that is owned by a person or company. It is a claim on the property your income of a borrower....
 are found on the left-hand side.

See also

  • Current asset
    Current asset

    In accounting, a current asset is an asset on the balance sheet which is expected to be sold or otherwise used up in the near future, usually within one year, or one business cycle - whichever is longer....