Introduction to business Assets and Liabilities – lecture notes

 

What is the meaning of an asset?

According to accounting standards an asset is something that a company owns

That can provide future economic benefits eg cash, inventory, buildings, equipment etc.

What is the meaning of liabilities?

These are company’s obligations that may be either money that must be paid or services that must be performed.

A successful company must have more assets than its liabilities ie. It thus has the resources to fulfill its obligations.

Types of assets

Assets are classified according to;

1.       Their convertibility to cash

These include a) current assets

                          b) Fixed assets

 

2.       On basis of their physical existence

These include a) Tangible assets

                          b) Non –Tangible assets

1. Current assets.

These refer to assets which can only be easily converted into cash within a year.

They include

·         Cash and cash equivalent

·         Short term investment

·         Inventories

·         Trade and other receivables

·         Accrued income

·         Derivative assets

·         Current income tax

·         Asset held for resale

·         Foreign currency

·         Prepaid expenses

    2. Fixed / Non – current asset

These cannot be converted into cash immediately but they provide benefits to the

 owner for a long period of time.

They include

·         Land

·         Buildings

·         Equipment

·         Furniture

·         Motor vehicles