An asset is anything, tangible or intangible, of value which a business owns or controls and which can be converted into cash. Assets can be of two types: current and long-term assets.
Current Assets
These make up the first major component of a balance sheet. These assets are composed of items that are either in cash terms already or can be easily converted into cash terms within a year, if, for instance, a company decides to wind up its operations.
Examples of current assets are as follows:
1. Cash And Cash Equivalents: These are the most liquid assets of all i.e. money that can be used for any purpose the business wants. This category includes things like petty cash floats and business bank account balances.
2. Short Term Investments: These are assets that a business or company may have when it invests some of its surplus cash in securities or bonds to hopefully earn a higher rate of return than if it is just left in the business doing nothing.
3. Debtors / Accounts Receivable: Accounts Receivable and debtors arise from selling goods or services to customers on credit; at the end of a trading period the amount in the debtors category is what they still owe for the goods or services they have already received. In terms of liquidity they are next in line after cash.
4. Stock: Any business which sells physical goods will probably carry stock to ensure continuity of supplies to their customers. Stock can be partially finished products or finished products which a business expects to be sold to customers in the near future. They are considered to be the least liquid type of current asset when compared to the other three above.
Current Assets
These make up the first major component of a balance sheet. These assets are composed of items that are either in cash terms already or can be easily converted into cash terms within a year, if, for instance, a company decides to wind up its operations.
Examples of current assets are as follows:
1. Cash And Cash Equivalents: These are the most liquid assets of all i.e. money that can be used for any purpose the business wants. This category includes things like petty cash floats and business bank account balances.
2. Short Term Investments: These are assets that a business or company may have when it invests some of its surplus cash in securities or bonds to hopefully earn a higher rate of return than if it is just left in the business doing nothing.
3. Debtors / Accounts Receivable: Accounts Receivable and debtors arise from selling goods or services to customers on credit; at the end of a trading period the amount in the debtors category is what they still owe for the goods or services they have already received. In terms of liquidity they are next in line after cash.
4. Stock: Any business which sells physical goods will probably carry stock to ensure continuity of supplies to their customers. Stock can be partially finished products or finished products which a business expects to be sold to customers in the near future. They are considered to be the least liquid type of current asset when compared to the other three above.
Long-Term Assets Or Fixed Assets
Long-term assets are non-liquid assets which are generally required for the day-to-day operations of a company and which cannot be easily converted into cash. They are also called fixed assets. They are purchased for long- term use for the business and are expected to continue in existence for more than a year, thus contributing to current and future years profits. They are likely to fluctuate in value more than current assets.
Examples of long- term or 'fixed' assets are:
1. Tangible Fixed Assets: Land, buildings, machinery, vehicles, equipment, tools and furniture may be included in this category. The owners of the business use these assets over a number of years in order to carry out their trading activities. Therefore, they are not consumed or sold during the normal course of business.
2. Intangible Fixed Assets: This category includes items like goodwill, patents, copyrights and trademarks. Due to their non-physical nature, the value of intangibles is often less certain than that of tangible fixed assets. As a consequence, specialist valuations are conducted if a business is sold and the balance sheet contains these items. Intangible fixed assets can be either bought into the business or generated from within an organization over a period of time.
