Accounting terms – Understanding assets

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Assets are the set of goods (material elements) and rights (intangible) economically controlled by the company, etc. They are divided into current, fixed and deferred.

Current assets, or current, is that liquid assets, or convertible into cash within twelve months. In addition, those applied in the cancellation of a current liability, or which prevent expenditures during the year are considered current assets.

With more accurate terminology, we could say that the current assets or assets refers to the resources of the entity that have high turnover or mobility.

The basic components of current assets are inventories, receivables, short-term investments and cash.

Fixed assets or noncurrent assets are those that do not vary during the operating cycle of the company (or fiscal year).

For example, the building where a factory produces its products is an asset because it stays in the company during the whole process of manufacture and sale of products.

The same may well have a different nature as the company in question, for example, a computer for a bank is an element of its fixed assets over several years because it remains in the company throughout the manufacturing process.

On the contrary, a computer, for a company that sells computer equipment, is a product framed within the products and not within its fixed assets.

Deferred assets: The balance of deferred asset accounts consists of prepaid expenses, for which you have the right to receive a service space, both in the same year as in later .

Liabilities and net assets

The passive is formed by obligations to third parties, arising from legal accountability to give, do or consent. Can be divided into current and noncurrent liabilities .

The equity or net assets, being the difference between assets and liabilities, are therefore the net book value of the company, as they represent the value of the assets and rights to the company.

They belong to grouping of assets that represent the contributions of the company owners.

This item can be calculated as the difference between assets and liabilities. This fulfills the accounting equation : Total Assets = Total Liabilities + Equity, or what is the same, Total Assets – Total Liabilities = Equity, being then Total assets – Current liabilities – noncurrent liabilities = Equity also can be calculated by the group or direct sum of the elements comprising capital and reserves substantially more income.

Accounting methodology

Accounting, as a science, uses a method called accounting , which consists of the following steps:

Capturing the economic content facts that can be recorded .
Quantification of accounting events .

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