Understanding Company Assets, Liabilities, and Equity
Mass Property
Definition
Assets represent a homogeneous set of available resources and liabilities with the same economic or financial significance. These are classified based on liquidity (ability to be converted into money), from low to high. Liabilities are categorized by enforceability, with more enforceable debts being those that mature earlier.
A. Assets
Assets encompass all property and rights owned by the company to generate future economic benefits. They are classified as either non-current or current assets.
Non-Current Assets
These are elements that remain within the company for more than one year and contribute to the company’s long-term operations.
- Intangible Assets: Non-physical items with economic value, such as patents and trademarks.
- Fixed Assets: Tangible, durable goods used for business operations, not intended for sale or processing, such as land, machinery, and furniture.
- Investments and Other Assets: Long-term investments like stocks, shares, and debentures of other companies.
Depreciation
Depreciation represents the systematic and annual reduction in the value of a fixed asset due to wear and tear, aging, or obsolescence.
Causes of Depreciation:
- Use: Greater use leads to greater wear and tear and higher depreciation.
- Time: Most tangible assets depreciate over time, especially those exposed to the elements.
- Obsolescence: Technological advancements can make existing assets less valuable, even if they are in perfect condition.
Depreciable assets include tangible and intangible goods, movable and immovable, acquired or created by the company for long-term use, not for sale or transformation.
Asset Valuation:
- Historical Value: The original acquisition or production cost of the asset.
- Depreciable Value: The historical cost minus the residual value.
- Residual Value: The estimated market value of the asset at the end of its useful life.
Current Assets
These assets are expected to be sold, consumed, or converted into cash within one year or the normal operating cycle.
- Inventories: Raw materials, work-in-progress, and finished goods held for sale or transformation.
- Trade Receivables and Financial Investments: Short-term credits and rights, such as customer debts and short-term loans.
- Cash and Cash Equivalents: Assets with immediate liquidity, such as cash on hand and in bank accounts.
B. Equity
Net Worth: formed by contributions from employers or members, retained earnings (reserves) and other variations, capital grants and donations reintegrales not.
The most important are equity capital.
Own funds consist of funds that the company has no obligation, in an agreed date of return.
Elements:
Capital: are individual employer contributions or contributions from the partners to share capital.
-Reservations: corporate profits are not distributed, ie, corporate profits are not distributed to the shareholders as dividends.
“Results from previous: reap the profits from previous years after making distribution to partners or negative results from previous years.
-Year results: records profits or losses of the last financial year.
C. Passive
Liabilities: groups elements that mean for the company debts or obligations outstanding. Represents financial resources outside the company.
“Non-Current Liabilities: consisting of the heritage to assume a debt that the company has to repay long-term. The main elements comprising non-current liabilities include long-term liabilities and long-term debt. As in the asset, we assume that periods of more than a year are considered long term.
-Current Liabilities: Debt consists of the company must return in the short term, ie less than 1 year.