Types of Assets and Liabilities

  

Date Posted: 4/5/2012 8:01:40 AM

Posted By: sashoo  Membership Level: Silver  Total Points: 382

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TYPES OF ASSETS

The assets of a business can be classified into two categories namely:

1. Fixed assets

2. Current assets

FIXED ASSETS
Fixed Assets or long term assets are assets that are acquired by the business for use in the business. The business has no intention of selling them at the time of purchase i.e. they remain in the business, and this is as long as the business continues to operate e.g. premises, furniture, equipment, motor vehicles, land, etc. However, they can be disposed off or sold if they are no longer productive.

CURRENT ASSETS
Current assets or short term assets are assets which remain in business over a short time period. This is usually less than one year. The value of these assets constantly changes e.g. the value of stock in hand increases and decreases at the same time it is bought and sold. Some of these assets are acquired by the business for re-sale purposes e.g. the stock. Cash is a crucial current asset as it facilitates the buying of other assets in the business. Other examples include cash at bank, debtors – (credit customers who owe money to the business after buying goods on credit.)

TYPES OF LIABILITIES

These can also be classified into two categories namely:

1. Current liabilities

2. Long term liabilities

CURRENT LIABILITIES
These are owings by the business that should be paid within a period of one year e.g. creditors. This also involves credit suppliers who sell goods on credit to the business i.e. the business might owe money to these suppliers.

Bank overdraft - this is where a bank customer is allowed to withdraw more money than the balance in his/her bank account. The excess money withdrawn by the customer is a short term borrowing from the bank and the customer should repay the money within the shortest time possible by making deposits

in his accounts. Accruals refer to bills that may have not been paid by the end of the accounting period e.g. unpaid electricity bills.

LONG-TERM LIABILITIES
These are owings by the business repayable over a period exceeding one year e.g. two years bank loan means that the loan should be repaid over a period of two years. Long-term liabilities also include debentures.

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