Financial Statements, Cash Flows and Taxes
Current assets are goods that are expected to be sold, leased, consumed or loaned out or otherwise can be used in creating income within a year of the date of the balance sheet. Current assets are often separated from other resources since the company relies on them to finance its ongoing operations and pay current expenses. Examples include cash, prepayments, inventory, marketable securities and receivables.
On the other hand, long-term assets refer to resources that are not expected to be recovered, meaning the monetary value extracted from it or it is less useful until after the twelve months on the balance sheet. Long-term assets include land, capital equipment, trademarks, land, and long-term investment, goodwill and property (Markle, 2004). Because these assets have long-lifetime in business, their costs are always spread over several years so as to avoid huge losses during years when capital expansions occur. Liability is an obligation to pay or provide future services according to the past agreement.
A current liability is an obligation a company expects to meet in the short term using the assets available on the balance sheet.
Examples include accounts payables, accruals such as salaries accrued and deferred revenues. On the other hand, a long-term liability is an obligation a business commits to pay over the course of more than one year (Jamie, 2003). These include bank loans for more than one year, mortgages, and bonds payable. A debtor’s claim refers to a liability that has a fixed amount of the claim. They include services that are supposed to be rendered by a business and had been prepaid by the customer.
On the other hand, owner’s claim, also capital, refers to residual claim on the remaining value of the business once debtor’s claims have been met.
Jamie, P. (2003). Financial Accounting in an Economic Context. New York: John Wiley & Sons.Markle, K. (2004).
Introduction to Accounting. Presentation delivered at Schulich School of Business (pp. 1-4 ). Toronto, Canada: York University