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Sunday, August 9, 2009

Assets, Liabilities and Equity

A short Discussion of Assets, Liabilities and Equity:


Assets are those physical and non physical material which you own. Generally in balance sheet, assets are recorded on the left side. It is mainly categoried into two i.e. current and non-current assets.

Current assets are those assets that can readily be converted to cash. Bank accounts are of course most readily convertible, but any assets that can be converted to cash within a short time are current assets. The short time for the current assets is taken as one year or less.

Non-Current assets are further divided into fixed assets and other assets. Non-current assets are mainly intended for long period of time like machine, building, furniture etc. Such non-current assets may be sold in less than one year or is intended to help to operate the business for periods of greater than a year.

Liabilities are what you owe. It is recorded on the right side of the balance sheet and it is also categorized into two i.e. current and non-current liabilities.
Current Liabilities are the liabilities which are to be paid in short period i.e. within one year or less.

On the other hand, non-current liabilities are the long term debts for more than one years. Long term debt, bank loan etc are non-current liabilities.

Equity is what's left over. It is your net worth. Equity consists of money invested in the compnay by the owners, money taken out of the company by the owners (i.e. their return on their investment) and net income.

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