Scribd
Upload
69 views

Examples of Assets Are

A balance sheet divides a company's finances into two categories: assets and liabilities. Assets are items owned that provide future economic benefit and put money into the company, while liabilities are amounts owed that take money out. The strength of a business increases as assets outweigh liabilities. Assets are further divided into current assets, which can be converted to cash within a year, and fixed or non-current assets. Similarly, liabilities are either current, due within a year, or long-term debts due after one year. Understanding assets and liabilities is key to evaluating a business's financial health.

Uploaded by

Bella Ayab
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
69 views

Examples of Assets Are

A balance sheet divides a company's finances into two categories: assets and liabilities. Assets are items owned that provide future economic benefit and put money into the company, while liabilities are amounts owed that take money out. The strength of a business increases as assets outweigh liabilities. Assets are further divided into current assets, which can be converted to cash within a year, and fixed or non-current assets. Similarly, liabilities are either current, due within a year, or long-term debts due after one year. Understanding assets and liabilities is key to evaluating a business's financial health.

Uploaded by

Bella Ayab
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

In its simplest form, your balance sheet can be divided into two

categories: assets and liabilities. Assets are the items your company owns that can provide
future economic benefit. Liabilities are what you owe other parties. In short, assets put money in
your pocket, and liabilities take money out!

Assets vs. Liabilities

Assets add value to your company and increase your company's equity, while liabilities
decrease your company's value and equity. The more your assets outweigh your liabilities, the
stronger the financial health of your business. But if you find yourself with more liabilities than
assets, you may be on the cusp of going out of business.

Examples of assets are -

 Cash
 Investments
 Inventory
 Office equipment
 Machinery
 Real estate
 Company-owned vehicles

Examples of liabilities are -

 Bank debt
 Mortgage debt
 Money owed to suppliers (accounts payable)
 Wages owed
 Taxes owed

What is Liquidity?

Assets are often grouped based on their liquidity or how quickly the asset can be turned into
cash. The most liquid asset on your balance sheet is cash since it can be used immediately to
pay a liability. The opposite is an illiquid asset like a factory, because the selling process
(converting the property to cash) will likely be lengthy.

The most liquid assets are called current assets. These assets can be converted to cash in
less than a year and include cash, marketable securities, inventory, and accounts receivable.
These assets generate revenue for your company.

Non-liquid assets are grouped together into the category of fixed assets. These include real
estate, vehicles, and machinery. Fixed assets are owned by your company and contribute to the
income but are not consumed in the income generating process and are not held for cash
conversion purposes. Fixed assets are tangible items usually requiring significant cash outlay
and lasting for an extended period of time.

Current vs. Long-Term Liabilities

Liabilities are also grouped into two categories: current liabilities and long-term liabilities.


Current liabilities are those that are due in the next year, while long-term liabilities will not be
due until at least a year later.

Current liabilities typically represent money owed for operating expenses, such as accounts
payable, wages, and taxes. In addition, payments on long-term debt owed in the next year will
be listed in current liabilities. For example, if you have a 30-year mortgage on your building, the
next year's worth of payments owed will be listed in the current liabilities section while the
remaining balance will be shown as a long-term liability.

As a small business owner, one of your most important goals will be to balance your books.
That means you need a solid understanding of assets and liabilities in order to make good
decisions and evaluate the health of your business. Once the terms are defined, understanding
assets and liabilities is fairly easy, and the financial reports you've been generating will start to
have more meaning!

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy