New Financial statements and Terms PDF
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According to Accounting terms
ASSETS
Assets are the economic resources of business or we can say assets are the property owned by the business to get benefit on future.
In other words, assets are valuable resources owned by a business which were acquired at a measurable money cost for usefulness.
The various types of assets are:
1- Fixed assets: those assets which are acquired for the purpose of increasing profit earning capacity of the business and are purchased not for sale purpose, they will remain in the business till the business winds up. Example, land and building, plant and machinery etc
2- Current assets: those which can be converted into cash within a short period say one year. These are short term assets for the purpose of converting them into cash. Example, cash in hand, debtors, stock, bank balance etc.
3- Liquid assets: similar to current assets, but they are those assets which can be easily and in a very short period of time can be converted into cash, so all current assets except stock and prepaid expenses are considered liquid assets.
4- Tangible assets: assets which having some physical existence or we say which can be touched and seen like land and building, machinery, stock etc
5- Intangible assets: those assets which can't be seen or touched and there revenue generation is assumed to be uncertain. Moreover they can't be purchased or sold in open market examples are goodwill, patents, trademarks etc.
6- Fictitious assets: those assets which do not have any real value and do not have any physical form but are called assets on the basis of legal and technical grounds, as they do not have any real value so they are written off in the future, for example preliminary expenses, discount on issue of shares and debentures etc.
7- Wasting assets: those assets when with the passage of time value of assets decreases, example patents, leasehold property.
LIABILITIES
Liabilities are the claims against those resources or liabilities are the amount which a business owes to outsiders or claim of outside towards business. We should remember one thing that we take all the claims against business except the claims of proprietors. Because claim of proprietors against business is called internal liability or capital.
Example of liabilities are, creditors, bills payable, bank overdraft etc.
We should note that total assets are always equals to total liabilities.
Types of liabilities are:
1- Fixed liabilities: which are payable after a long period or normally one year. Example long term loans, debentures etc.
2- Current liabilities: those which are payable within one year example, bills payable, creditors etc
3- Contingent liabilities: those liabilities which are not a liability for today but it may be liability in future depending on the future events, they are uncertain liabilities so that is why they are called doubtful liabilities also. Example, value of bill discounted, cases pending in court etc.
Total assets=total liabilities
Or
Total assets= internal liabilities+external liabilities
Or
Total assets= Capital+ liabilities
Or
Liabilities= Assets-capital.
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