The purpose of this paper is to discuss current and noncurrent assets, define the differences and similarities between the two, and address what the order of liquidity is and how it applies to the balance sheet.
In business an asset is defined as a property or equipment owned by a company that has a positive economic value. There are two main types of assets: current assets and non-current assets. Current Asset
Current assets are assets that a company expects to convert to cash or use within one year (Kimmel, Wegandt, & Kieso, p. 49, 2007).
Common types of current assets are cash, short-term investments, receivables, inventories, and prepaid expenses. 1. Cash is considered current assets because it typically is used within a year of it being stated on a balance sheet. 2. Short –term investments are investments that a company has made that will expire within a year. Stocks and bonds are considered to be short-term investments. 3. Receivables are money owed to the company by customers and are considered current assets because the company will collect and convert to cash within a year. 4. Inventories are materials or goods used by a business that are considered current assets because the company expects to use them up within one year. 5. Prepaid Expenses are assets that are recorded in the balance sheet as future payments for goods and services. An example of prepaid expenses is Insurance. The cost of insurance is recorded in the balance sheet as future payments since the policy holder pays money upfront to cover the risk. Non-current Assets
The Term Paper on The intangible assets section of the balance sheet
... Amortization Expense Year 201224,000 Estimated Amortization Expense Year 201319,200 Year 201414,400 Year 20159,600 Year 20164,800 (c)In 2013, the company successfully defends ... of long-term debts to be paid from current assets. (n)Cash dividends declared but unpaid. (o)Dividends in arrears ... $300,000 cash, are used to liquidate the $1,200,000 debt. The December 31, 2012, balance sheet is issued ...
Non-current assets are assets that are not easily convertible to cash or not expected to become cash within a year. Some examples of non-current assets are fixed assets, intangible assets and long-term notes receivable. 1. Fixed assets are tangible material, property, or property that a business owns. They are used for terms longer than one year due to that they are not easily converted into cash within that time. 2. Intangible assets are similar to fixed assets but are intangible assets such as copyrights, patents, goodwill, and franchise. 3. Long-term notes receivables are non-current assets that will not be received within a year from when they are listed in a balance sheet. Difference Between Current and Non-Current Assets
The main difference between current and non-current assets is the time it takes for both assets to be used, sold, or received. Current assets are used or sold within a year. Some examples of current assets are cash, supplies, and bank balance. Non-current assets are used or sold over a longer period than a year. Examples of non-current assets are preferred stock, common stock, and liabilities. Order of Liquidity
Order of liquidity are items listed on the balance sheet in the order in which they expect to be converted into cash. The order from highest to lowest liquidity in which the items are presented on a balance sheet are cash or cash equivalents, marketable securities, accounts receivable, inventory, long-term assets, and intangible items (Codija, 2012).
1. Cash and Cash Equivalents- most liquid items, they are easily used to pay goods or services. 2. Marketable Securities – high liquid items that can be easily converted into cash. Examples of marketable securities are treasury bills and commercial paper. 3. Accounts Receivable – third in the list, amount company expects to collect from customers within the next months. 4. Inventory – short tem asset, these items can easily be sold if no longer needed. 5. Long-Term Assets – often take long to sell, examples are machines or equipment. 6. Intangible Items – least liquid and hard to value.
The Term Paper on Financial Statement And Cash Flow Analysis
Used to figure out how much money we are earning for: (a) (b) (c) (d) vendors, employees, etc – Cost of Goods Sold, Operating Expenses lenders, bondholders – Interest, government – Taxes, owners/stockholders – Dividends/Retained Earnings Sales (-) Cost of Goods Sold (-) Operating Expenses (-) Depreciation EBIT (-) Interest EBT (-) Taxes Net Income (-) Dividends Additions to ...
Assets to a company are very important as it defines the financial standing of the company. The more assets the company has the better off they are in money. Knowing what assets are easiest to convert to cash is also very important. In case that a business might need cash it is important to know where in what order to start selling it’s assets.
References
Kimmel, P. D., Wegandt, J. J., & Kieso, D. E. (2007).
Tools for Business Decision Making (4th ed.).
Retrieved from The University of Phoenix eBook Collection database. Codija, M. (2012).
What Does the Order of Liquidity Mean on the Balance Sheet?. Retrieved from http://www.ehow.com/info_8127074_order-liquidity-mean-balance-sheet.html
