Companies need to account for their daily activities, which can include the office supplies being used daily by its employees such as copy paper, toner, etc., as well as supplies that do not deplete, however are being used daily, such as copiers, fax machines, etc. The most common items are categorized on a balance sheet which will represent the value of all assets that are expected to be converted into cash within one year in the normal course of business (TD Bank.com, 2014). A balance sheet is where a creditor or investor will look to see how your company is progressing financially. The balance sheet is a written report of the company's assets and liabilities. It specifically shows the current and noncurrent assets of the company. It is first important to understand what each type of assets is. According to businessdictionary.com the definition of a current asset is “any item that a company has that can be converted into cash within a one year period” (businessdictionary.com, 2014). Some examples of assets are inventory, cash, pre-paid items, accounts receivables, and short term loans. These particular items will be sold, paid, or remain directly as cash within a 12 month period. For any business to start up, they must have basic assets in place such as cash, supplies, and inventory which have the ability to generate income for their business. These assets can generate income and also create a means which would add to the income generating process for the company. Current assets will either deplete or convert into cash within a (12) month period. Companies will continue to collect and convert accounts receivables into cash, thus making it a current asset. In most cases, current assets can be liquidated within a (12) month period or (1) fiscal year for the company. Current assets are placed on the balance sheet, usually on the right hand side. On the other hand, noncurrent assets are the company's long-term investments actual value will not be reached within the (12) month period. Noncurrent assets can include investments in stocks and bonds, goodwill, as well as office equipment or land. These items are capitalized, which means that the company apportions the cost of the asset over the years which the asset is intended to be in use for, rather than allocating the entire cost to the actual year that the asset was purchased. Allocation is a general term used to cover terms such as depreciation, amortization, or depletion, depending upon the type of asset it may be. Just as with current assets, noncurrent assets are also included on the balance sheet. There are several differences between current and noncurrent assets. The main difference is the time in which the asset will be converted into cash. Current assets usually convert to cash within a (12) month period, whereas a noncurrent asset will go beyond the (12) month period. Current assets are not long term assets, and they are involved in creating the liquidity of the company. Non-current assets are also referred to as fixed assets. These types of assets usually remain within the business for a longer duration of time. These assets are usually not a part of the day-to-day operations of the business, thus they cannot be utilized to satisfy short-term operational expenses of the business.
The assets help to determine the company’s liquidity. It is important to have a properly prepared balance sheet, so that you can review it at the end of each period to know exactly how much value your business holds, the height of your debts, and the height of your working capital. In order to measure the liquidity of a company, one must measure the company’s current assets against its current liabilities. The order of liquidity is the “presentation of assets shown on the balance sheet in the order of time that it would take to convert them into cash” (TD Bank.com, 2014). As such, cash will always be shown first, followed by marketable securities,...
References: Businessdictionary.com (2014) Definition of current assets. http://www.businessdictionary.com/definition/current-asset.html
TD Bank.com (2014). Preparing a Balance Sheet. Retrieved from:
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