An Introduction To Assets And Liabilities
Net worth is a vital determinant of a company’s future, considering that it is composed mainly of all the money that has been invested since the day it has started, as well as the retained profits on the course of its operation.
Having said that, learning one’s assets and liabilities is crucial because these two are a factor in the net worth formula. Taking particular notice at one’s assets and liabilities can give the company an image of its current standing and the direction at which it is heading.
To have a snapshot of a company’s finances, one must first look at the assets. Assets are any item with monetary worth held by an individual or organization that can generate cash flow and revenue. In business, assets generally include currents assets, capital assets, investments, and intangible assets.
Current assets are resources that can be quickly turned into cash. A few common examples include cash and cash equivalents, inventory, accounts receivable, and notes receivable.
Capital assets, on the other hand, are resources which are bought for extended use. Examples of capital assets are land, buildings, machineries and equipment. Investments are likewise considered assets. Securities like stocks and bonds are common examples. A few good examples of intangible assets include copyrights, trademark, and licensing agreements.
Liabilities, or also referred to as payables, are anything that a company owes to another person or organization. Liabilities are usually categorized as either current liabilities, or long-term liabilities. Current liabilities are debts or obligations which need to be settled within the company’s operating cycle and are typically paid with current assets. Long-term liabilities, on the other hand, are debts or obligations that can be paid beyond a year and are usually paid with capital assets.
Some good examples of current liabilities are taxes payable (taxes you owe), salaries payable (salaries you owe employees), accounts payable (what you owe others on account), and notes payable (promissory notes to creditors). Common examples of long-term liabilities include mortgages payable, bonds payable, and long-term notes.
Gathering information about one’s assets and liabilities can give you your net worth. Just note the difference between the total amount of assets and total amount of liabilities to obtain your net worth.
What Are Assets – An Overview
What Are Assets?
An asset is a useful resource having monetary value that an individual, company or country holds which is expected to produce cash flows and eventually generate revenues for the owner. In accounting terms, assets are those items written on balance sheets which show all the valued resources of a particular entity.
How are they categorized?
Assets may be classified in two ways. Firstly, assets can be classified either as tangible or intangible. Secondly, assets may be grouped in accordance with how they are shown on balance sheets, that is, as current assets or non-current assets (otherwise known as fixed assets).
What are assets in relation to being tangible and intangible?
Tangible assets are financial resources which are real, actual and physical in nature. Meaning, these are assets which can be perceived by the senses of sight and touch.
Nearly all tangible assets can be readily converted to cash (or are already cash). Money saved in banks, land, buildings, motorized vehicles, machineries, and fixtures are a few of the many examples. Intangible assets, on the contrary, are valued items that cannot be physically measured and cannot be quickly converted into cash. Examples include trademarks, licensing agreements, franchise agreements and copyrights.
Next, what are assets as represented on balance sheets?
Current assets are valued resources which can be readily transformed into cash within one operating cycle, usually one year. Cash is considered as a form of current asset for the simple reason that it’s already cash. A few other examples include cash equivalents, securities or short-term investments, accounts receivable, notes receivable, inventory, and prepaid expenses Non-current assets are long-term assets which are not expected to be converted into cash within a year.
Also known as fixed assets, non-current assets cannot be easily turned into cash. Overall, non-current assets are not expected to be sold. Instead, non-current assets are bought to maintain company operations such as producing goods and expert services.
What are assets and how important are they? Other than the labor force, assets are what represent a company. Assets are important in any business because it holds the company. Without these assets, any organization is apt to go downhill.
Fixed Assets – Definition, Types, And Importance
An asset, by definition, is a resource with economic value that a person, corporation or country owns with the expectation that it can generate cash flow and ultimately generate income.
Fixed assets are a form of asset that has a long-term application, which the owner does not intend to sell for a minimum of one year. Fixed assets are also referred to as non-current assets or property, plant, and equipment (PP&E). In general, fixed assets are not purchased to be sold and are not held to be converted to cash. Instead, fixed assets are acquired for prolonged use so as to produce goods and ultimately render service to customers.
Fixed assets are classified in a balance sheet as tangible, intangible, or investments.
Tangible assets are useful resources of an individual or corporation which are real, actual and physical in nature, rather than hypothetical. Just about all tangible assets can be quickly transformed into cash (or are in the form of cash already).
A few good examples of tangible assets are land, buildings, motor vehicles, machineries and equipment, bank deposits, and furniture.
Fixed assets can likewise be intangible. Intangible assets are non-physical in nature which can possibly have the chance of generating income in the future, but are not currently something that can be sold for profit. As opposed to tangible assets, intangible assets cannot be quickly turned into cash. Trademarks, motion pictures, licensing agreements, broadcast rights, franchise agreements and copyrights are some fine examples of intangible assets.
Fixed assets are a stable source of income over a period.
Fixed assets are very important in businesses. If businesses are devoid of these assets, they’re likely not be able to grow and face a setback in producing goods and services. It is essential, therefore, for any organization to handle their fixed assets very carefully. Lousy handling of fixed assets could lead to major dilemmas such as paying higher taxes, overpaying on insurance premiums and missing out on income tax deductions.
During these times of global recession, no person wants a crippled business. Much more so, no businessman wants to lay anyone off.
Fixed assets are the building blocks of any business. It is for this reason that makes it vital for any company to look closely at their fixed assets and take better care of everything else that it owns.
Net Assets – Definition, Calculation, And Importance
An asset is any useful resource owned by an individual, company or a country which can generate cash flow and produce income.
Net asset, also referred to as net worth, owner’s equity or shareholder’s equity, is equal to total assets minus total liabilities. In balance sheets, net assets reveal exactly how much an organization would be worth if it paid all of its debts.
To calculate for net assets, simply deduct the total liabilities from total assets. For instance, if you have $10,000 worth of savings in the bank, but you need to pay someone $2,000, your net asset would be $8,000.
In real life, however, calculating for one’s net assets is far more complex. There are several types of assets and liabilities, many of which are confusing. And this is where the problem emanates from.
Net assets are viewed as an essential part of any company. It can determine the true worth of a company, given that it made up primarily of all the money which has been spent since the company started, along with the saved earnings on the span of its business.
That being said, net assets can be used to determine an entity’s credibility as it gives a picture of a corporation’s investment history.
Net assets are quite possibly the most vital component of balance sheets of any business.
There are plenty of explanations why an organization must compute for its net assets. For one, any corporation must know its net assets in order to keep in touch with its money and be knowledgeable about its status along the road and ultimately have a picture of where they’re going.
A growth in net assets tends to indicate a growing business.
Next, in case there are bad results in the balance sheet, net assets can work as a potent motivator for organizations to try and do far better later on.
Upon having a glance at your financial health status, never try to equate your net assets to another company’s net assets. Keep in mind that net assets are swayed by many factors and that no two companies are exactly identical with regards to these factors.
As far as net assets are concerned, the most significant thing to see is the development of the company.
Just keep track of your net assets and with hard work and dedication, you surely will have a successful business at some future time.
Total Assets – Definition, Classification, And Examples
Total assets refer to all items which have monetary value that an individual or business owns.
Total assets are valued based primarily on the purchase price and not the market value of the assets at present. Total assets are a major part of a company’s balance sheet and may be classified either as current assets or fixed assets.
Current assets are short-term assets that are more likely to be turned into cash, sold or consumed within a year during the course of business. Examples include cash, securities or short-term investments, accounts receivable, notes receivable, inventory, and prepaid expenses.
Cash refers to the money that a company has in the bank.
Marketable securities, alternatively, are short-term investments in stocks and bonds that are more apt to be sold in no greater than one year. Accounts receivable, also termed as Debtors, is the money owed by a company to another company for products and services used, but not yet paid for.
Notes receivable is very much the same with accounts receivable except that the former’s receivable is represented by promissory notes. These are legally-binding written promises signed by customers to settle debts at a specified time. Inventory is yet another type of current asset that pertains to the total amount of raw materials, work in progress items or finished goods that are available for sale anytime. Prepaid expenses are assets which are paid prematurely such as rents and insurance premiums.
Total assets can also be reflected on balance sheets as fixed assets. Fixed assets are long-term assets which an individual or company does not expect to sell for at least a year. Also known as non-current assets, fixed assets cannot be easily converted into cash. Fixed assets can be categorized as tangible, intangible or investments.
Tangible assets are financial resources held by an individual or corporation which are real, actual and physical in nature. Common examples include land, buildings, machineries and equipment, and motor vehicles.
Intangible assets, on the contrary, are assets which have no physical form.
Some good examples include trademarks, licensing agreements, broadcast rights, franchise agreements and copyrights. Investments listed under fixed assets are short-term investments in stocks or bonds which are not likely to be sold within a year.
Total assets give you a snapshot of your financial capabilities as a business. Knowing where you are now can provide you a road map about the direction at which you are heading.