ASSETS
Assets are owned by the business and based on its liquidity it is categorized into current and non-current assets.
Current assets are assets that can be quickly converted into cash without a loss of value to meet the short-term financial obligations of a business. These assets are expected to be converted into cash or used up within one year, which is typically a financial year. Examples of current assets include:
Cash (sometimes also written as cash & cash equivalents or cash in bank/hand),
Accounts Receivables (A/R) – money owed by customers to the business
Prepaid expenses – any future expense paid in the current financial year
Inventory – value of the remaining inventory
Fixed assets, also referred to as non-current assets or long-term assets, are assets that a business owns and are necessary for the continued operation of the business. Fixed assets can be divided into two categories:
Tangible Fixed Assets which are physical assets and include assets like Equipment or Vehicles, Manufacturing plant, Buildings, and Land
Intangible Fixed Assets which have no physical form but can be measured monetarily like Goodwill, Brand value, Trademarks, and Patents & Copyrights
LIABILITIES
Liabilities are amounts of money owed by the business to others. Based on the time the business has to pay back to others, liabilities are categorized as current liabilities and long-term debt.
Current liabilities are debts that must be repaid within a year, typically within one financial year. Examples of current liabilities include:
Accounts Payables (may include rent payables, salary payables, etc.)
Trade Payables
Short-term borrowings
Long-term debts, also known as long-term liabilities or non-current liabilities, refer to principal loans to be repaid over a long period (more than a year).
EQUITY
Equity, also known as owner’s equity or shareholder’s equity, represents the owner's investment in the business. Common equity terms in a balance sheet includes:
Common shares
Preferred shares
Retained Earnings
Disclaimer: The description above is written by the author based on the knowledge attained from years of reading and teaching experience from various books and articles.
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