Assets and Liabilities

Possession is a product of worth owned by the company. Properties can be concrete i. e. those which have some physical existence or can be intangible i. e. which do not exist in physical kind but can be held in the type of contracts or rights. Assets are normally organized in order of liquidity (ease of conversion to cash) on the balance sheet. Cash is for that reason the most liquid of all possessions. Possessions can be classified as:

Present Assets

Those properties that are anticipated to be transformed to cash in 12 months or less.

This can be in the type of cash, accounts receivables, stock for producing items and so on.

Investments

These are the financial investments which the company make in other business in the type of equity purchase, bonds etc.

Fixed Assets

A set property is one that is held for the function of producing or supplying items or services and not for sale in the normal course of service.

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They are likewise referred to as long lived/ long term properties and are sub-classified as following:

a. Home, Plant & & Equipment

These are tangible products having physical existence and can be seen and felt.

b. Intangible Assets

They have no physical existence and rather represent legal rights with involved financial benefits.

Natural Resources

These include oil, natural gas, minerals and forests. Liability is something which a company owns to individuals or organisations other than its owners. Liability is a present responsibility emerging due to some past transactions and settlement of which is anticipated to lead to future transfer of properties (may be in the kind of cash) or performance of services.

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Normally, liabilities can be categorized into two types based on when they are due:

  1. Present Liabilities

Any liabilities or outgo of a payment which is to be made in the regular operating cycle (normally next 12 months).

Also known as the short term liabilities, this type includes the payments which are to be made to suppliers/vendors i. e. trade payables, short term loans, employee salaries etc. Current Liabilities can further be classified into

a. Definite Liabilities – Can be determined precisely

b. Estimated Liabilities – Also known as Provision, this is a liability of uncertain time and amount.

  1. Long Term Liabilities

Any debt of a company which extends for more than a year will be categorized under long term liability.

This may include long term bonds issued by a company, notes payable, pension obligations etc. We can also classify liability on the basis of security available to the creditor in case of default.

  1. Secured Liability – It is backed by a pledge, hypothecation or mortgage of borrower’s specific asset in favor of creditor. In case of default, creditor proceeds to settle the dues by selling the assets.
  2. Unsecured Liability – This is incurred based on the borrower’s general credit standing, and the creditor has legal claim only against the borrower’s net assets.

Apart from above classifications, another type of liability is Contingent Liabilities. This is defined as:

  • Possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of entity.
  • Or a present obligation that arises from past events but is not recognized because it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of obligation cannot be made.

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Assets and Liabilities. (2016, Jul 12). Retrieved from https://studymoose.com/assets-and-liabilities-essay

Assets and Liabilities

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