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The Business Assets

Assets are economic resources that are owned by a business and are expected to benefit the future operations. In most cases, the benefit to future operations comes in the form of positive future cash flows. The positive future cash flows may come directly as the asset is converted in to cash (collection of receivable) or indirectly as the asset is used in operating the business to create other assets that result in positive future cash flows (building, and land used to manufacture a product for sale). Assets may have a definite physical form such as buildings, machinery, or an inventory of merchandise. On the other hand, some assets exist not in physical or tangible form, but in the form of valuable legal claims or right; examples are amounts due from customers, investments in government binds and patent rights.

Liabilities

Liabilities are debts. They represent negative future cash flows for the enterprise. The person or organization to which the dept is owed is called a creditor. All businesses have liabilities, even the largest and most successful companies often purchase merchandise, supplies, and services on "account". The liabilities arising from such purchases are called account payable. Many business borrow money to finance expansion or the purchase of high cost assets. When obtaining a loan the borrower usually must sign a formal note payable. A note payable is a written promises and generally do not call for interest payments. In essence a note payable is more formal arrangement. When companies have both notes payable and account payable, the two types of liabilities are listed separately in the balance sheet. Liabilities are usually listed in the order in which they are expected to be repaid. Liabilities that are similar may be combined to avoid unnecessary detail in the financial statement. For example if a textile company had several expenses payable at the end of the year (for example wages, interest, tax, rent). It might combine these in to a single line called accrued expanses. The word accrued is an accounting term communicating that the payment of certain expenses has been delayed or deferred. Liabilities represent claims against the borrower's assets. the owners of a business also have claims to the company's assets. But in the eyes of law, creditors' claims take priority over those of the owners. This means that creditors are entitled to be paid in full, even if such payment would exhaust the assets of the business and leave nothing for its owners

By Mustafain Naqvi
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