Key Financial Statement Components: Assets, Liabilities, Equity
Understanding Financial Statement Components
What are Assets?
Assets are economic resources owned or controlled by a company that are expected to provide future economic benefits.
Non-Current Assets
Non-current assets comprise the totality of assets which represent investments, assets, or rights to be held for a period exceeding one year. These are long-term assets not expected to be converted into cash within one year.
Types of Non-Current Assets:
- Intangible Fixed Assets:
- Computer Software: Amount paid for the property or the right to use software, whether purchased from third parties or developed by the company.
- Property, Plant, and Equipment (PPE): Tangible assets used in the productive activity of the company.
- Buildings: Structures of any destination within the productive activity of the company.
- Machinery: The set of machines or equipment used for the extraction or processing of products.
- Tooling: Utensils or tools that can be used independently or in conjunction with machinery.
- Furniture: Furniture, equipment, and office equipment.
- Information Processing Equipment: Computers and other electronic equipment.
- Transport Elements: Vehicles of all kinds used for the transport of persons, animals, or goods.
- Land and Natural Resources: Lots of urban, rustic, or other non-urban land, mines, and quarries.
Current Assets
Current assets comprise the totality of capital which represents investments, assets, or loans to buyers of goods or services expected to be realized or consumed within a period of less than one year, or even several times a year.
Types of Current Assets:
- Stocks of Goods: Property acquired by the company for resale without significant change.
- Realizable Assets:
- Customers: Receivables from purchasers of goods (as defined in group 3) and users of services that constitute a major activity.
- Customers, Commercial Receivables: Receivables from clients formalized in accepted commercial paper.
- Debtors: Loans with service buyers who do not strictly meet the condition of clients.
- Available Funds:
- Cash (Euros): Availability of liquid funds on hand.
- Banks and Lending Institutions (Current Accounts, Euros): Balances held by the company in current accounts, readily available at banks and credit institutions.
What is Equity?
Equity (also known as Net Worth or Capital Accounts) represents the origin of a company’s own capital or financing.
Components of Equity:
- Capital:
- Capital formally deeded in commercial companies.
- Capital pertaining to individual companies.
- Legal Reserve: Reserves established by Article 214 of the revised Corporations Law.
- Net Income: Positive or negative results from the last financial year, pending implementation.
What are Liabilities?
Liabilities represent a company’s obligations to third parties or staff.
Non-Current Liabilities
Non-current liabilities comprise the capital that accounts for long-term external financing, with maturities exceeding one year.
Types of Non-Current Liabilities:
- Long-Term Debts to Credit Institutions: Borrowings and other debts contracted with credit institutions, due in more than one year.
- Long-Term Debts to Third Parties: Debts owed to third parties for borrowings and other obligations with maturities over one year.
- Long-Term Fixed Asset Suppliers: Debts to suppliers of fixed assets with maturities exceeding one year.
Current Liabilities
Current liabilities consist of those accounts or obligations which represent short-term external financing, with maturities not exceeding one year.
Types of Current Liabilities:
- Short-Term Debts to Credit Institutions: Borrowings and other debts with maturity not exceeding one year.
- Short-Term Fixed Asset Suppliers: Payables to suppliers of fixed assets with a maturity not exceeding one year.
- Trade Payables:
- Suppliers: Payables to suppliers for purchases of merchandise by invoice or other property as defined in group 3.
- Suppliers, Commercial Paper to Pay: Payables to suppliers, formalized in accepted commercial paper.
- Service Providers: Debts to service providers who do not have the strict status of suppliers.
- Public Finance Payables (Tax Concepts): Unpaid taxes owed to the government, whether the company is contributing as a direct taxpayer, substitute, or retainer.
- Social Security Agencies, Creditors: Debts owed to Social Security Agencies as a result of the services they perform.