Assets and Liabilities

Assets and Liabilities

by Dr. John E. Ware, I


Assets are resources owned by a business (e.g. cash, supplies, inventory, accounts receivable, prepaid expenses, equipment, buildings, land, and vehicles) and further classified as current assets and non-current assets. Current assets are short-term assets that can be converted into cash or will be used up within one year. Non-current assets are long-term assets such as property, plant, and equipment, long-term investments, and intangible assets (e.g. patents, copyrights, trademarks, licenses, and goodwill). Property, plant, and equipment are long-term assets currently used in the company's operation.


Liabilities are debt obligations to creditors. This is the amount of debt a company carries on its balance sheet and classified as: current liabilities and long-term liabilities. Current liabilities reflect short-term obligations to creditors (debt due within one year). Long-term liabilities represent future debt obligations over one year. For example, suppose a company acquires a 15-year mortgage. The amount due within the next 12 months is classified as a current liability in an account titled: Current Maturities of Long-term Debt or Short/Current Long-term Debt and the remaining balance due in 14 years is classified as a long-term liability. The portion of the long-term debt due within 12 months will always be reported in the current liabilities section of the balance sheet.  The entire amount due (last 12 months) is reported as a current liability in the final year of the loan.


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