This is a simple question but the answer is not as simple. Whether a common stock is an asset depends on who owns the stocks and whose stock is this. Before we go into more detail and explain this clearly, let us recap what Asset means.
What is an Asset?
An asset is something that has value. Either you can sell this item or intangible in the market in exchange for cash, or you can use this item or intangible to create additional revenue or income, directly or indirectly. A factory building owned by a business is an asset as it is used to produce products that can be sold for revenue. An unused piece of real estate owned by a company is also an asset. It can be sold in the market in exchange for cash. Assets cost money to acquire, however not everything you can buy is an asset. For example, last night’s dinner at home cost money but is not necessarily an asset. It is more appropriately classified as an expense. Assets can be used to pay off liabilities and meet other obligations.
So then we come back to the original question. If you spend money to acquire common stock, is it an asset (or an expense)?
The answer depends on whether you are an Individual, or a Company.
Case 1: You Own Common Stock as an Individual As One of the Financial Assets
In this scenario, common stock is definitely an asset. It keeps or grows in value over time, and it may also generate regular income in form of dividends. In some cases the stock may decline in value and deliver you a loss, but it is still an asset, albeit a declining asset.
Law also considers common stock as your asset. It gets counted when you apply for a loan, it gets carved up during divorce, and it can be inherited or passed on to the future generations. Common stock is part of your financial assets which may also include cash, preferred shares, bonds, cds and notes.
Common stocks also tend to be very liquid assets. They can be converted to cash quickly when needed. Because of this, stocks are a popular vehicle for wealth preservation and growth for people to secure their retirement.
Case 2: You Own Common Stock as a Corporation on Your Balance Sheet (Assets or Equity)
This can be further divided into 2 sub-cases.
Case 2a: You Own Your Own Company Stocks
Many companies buy back their outstanding shares in the market and hold it as a treasury stock. Treasury stock is part of the Equity and is found in the Shareholder Equity section of the balance sheet.
Case 2b: You Own Other Company’s Stocks
Many companies buy a stake in other companies either for investment purposes or as a strategic choice. This ownership is classified as Assets and can be found in the Assets section of the balance sheet. If the stock is highly liquid and held for short term, it is listed under Marketable Securities. If the stock is purchased as a long term strategic investment, it may be listed under long term assets.
As you can see, the accounting treatment of the common stock held on the company balance sheet differs based on whether it is own company stock or other company stock.
Are Stocks Real Assets?
Stocks are considered financial assets as they are paper assets. Real assets are tangible in form, such as inventory or property or real estate. Stocks can be converted to cash which can be then used to acquire real assets.