Current and Noncurrent Assets Paper
September 08, 2014
What is an asset? An asset is an item that is owned by customers and businesses. It has an economic value that can be converted into cash and help repay debts. It also tells how much a business has in value. Accounts receivables, cash, and securities are some examples of assets. Assets are equal to the sum of liabilities, common stock, preferred stock, and retained earnings that are found on the balance sheet (www.investorwords.com/273/asset.html). In accounting, assets are divided into different categories such as current assets, long-term assets, prepaid and deferred assets, and intangible assets (www.investorwords.com/273/asset.html). What is a balance sheet? It is a financial statement that shows the company’s assets, liabilities, and the owner’s equity. The asset equals liabilities plus shareholders’ equity is the formula for accounting equation. The balance sheet was naming that because the assets and liabilities have to balance out (www.investopedia.com/terms/b/balancesheet.asp). Learning and understanding the different types of assets and financial statements can help determine if a company will be successful in the future or not.
What is a current asset? It is a balance sheet item that equals the sum of cash and cash equivalents, accounts receivable, inventory, marketable securities, prepaid expenses, and other assets that can be converted into cash in less than one year (www.investorwords.com/1245/current_assets.html). Businesses need current assets to fund their daily operations. When a company’s assets fall short, they must find another funding to make up for the short fall. Cash and equivalents, short and long-term investments, accounts receivable, inventories, and prepaid expenses makes up different kinds of current assets. Bearer bonds and money market funds are assets that are money in the bank. If a company does not have a need for cash and equivalents, they can mail it back to the customer or allow them to invest or buy back shares (www.fool.com/investing/beginning/how-to-read-a-balancesheet). Short-term investments come into play when a company has a large amount of cash on hand and can afford to invest in bonds. Accounts receivable is money that individuals owed to businesses. The customers received the goods or services but have not paid for them. Some companies lose money when customers do not pay them and the company has to write it off. Inventories are goods that businesses keep in their warehouse or supply center. The prepaid expenditures are expenses already paid by the company to their suppliers.
What is a noncurrent asset? It is an asset that cannot be easily converted to cash within the next year (www.investorwords.com/3313/noncurrent_asset_html). It is the opposite of current assets. Fixed assets, long-term investments, property, plant and equipment, and intangible assets are examples of noncurrent assets. Fixed assets are used to depreciate and intangible assets are used to amortize by a business for more than one year (www.simplestudies.com/difference-between-current-and-noncurrent-assets-liabilities.hmtl/p).
What is the difference between current and noncurrent assets? The current assets are short term while the noncurrent asset is long term. Current assets can be converted into cash within one year. Noncurrent assets cannot be converted into cash within one year. Current assets are less profitable than noncurrent assets. Noncurrent assets are risker than current assets because it is difficult to turn into cash and is likely to fluctuate in value more than current assets (www.financial-dictionay.thefreedictionary.com/Noncurrent-asset). Current assets are used for income generation and noncurrent assets are used for profit generation. Current assets are use daily in businesses operations while noncurrent assets are not because it cannot be used to meet the short...
References: Retrieved from http://accountingtools.com/questions-and-answers/what-is-order-of-liquidity.htm
Retrieved from http://financial-dictionary.thefreedictionary.com/Noncurrent-asset
Retrieved from http://fool.com/investing/beginning/how-to-read-a-balancesheet
Retrieved from http://investopedia.com/terms/b/balancesheet.asp
Retrieved from http://investorwords.com/273/asset.html
Retrieved from http://investorwords.com/1245/current_assets.html
Retrieved from http://investorwords.com/3313/noncurrent_asset_html
Retrieved from http://simplestudies.com/difference-between-current-and-noncurrent-assets-liabilities.hmtl/p
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