How to Recognize & Define the Main Types of Assets in the Balance Sheet of a Corporation

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A corporation's balance sheet is a snapshot of the company's financial position. Some items on a balance sheet transfer to other corporate financial statements, but others do not. Many banks and investors request a balance sheet to get a full picture of a company's net worth. In addition to assets, a balance sheet lists liabilities (amounts owed) and owners' equity. Assets are always listed in order of liquidity. Understanding the types of assets on your company's balance sheet and what the entries mean to investors or lenders puts you in a better position in negotiations and discussions of a company's situation.

Instructions

  1. Current Assets

    • 1

      Identify cash balances. This is the most liquid asset and includes bank account balances and cash on hand. You can access cash funds more quickly than any other asset. Some balance sheets may also list a petty cash account. This is a reserve cash account for miscellaneous company purchases.

    • 2

      Identify accounts receivable (A/R) balances. This is the second most liquid asset and includes amounts owed to the company by customers. It is normal for a small percentage of accounts to go unpaid, but the majority of accounts receivable are paid timely.

    • 3

      Identify inventory. Inventory includes items that are available for sale or production into a good or service for purchase by customers. Inventory in the current-asset category is expected to be sold within a one-year period.

    • 4

      Identify supplies. It is expected that current asset supplies are consumed within one year.

    • 5

      Identify prepaid insurance. This is insurance a company has paid for but not yet used. As the insurance is used, the asset account depletes.

    Long Term Assets

    • 6

      Identify investment balances. Investments are the most liquid long-term asset and may include bonds, stocks and other cash-value accounts. Because an investment is generally held longer than one year, it is listed as a long-term asset. However, if a corporation makes a short-term investment (held for less than a year) it may appear as a current asset.

    • 7

      Identify land assets. Land is a long-term asset because it is expected to take longer than one year to realize the value of the asset. In addition, land is not depreciated, and is often separated from other long-term assets on a balance sheet for this reason.

    • 8

      Identify other property and equipment. These long-term assets are subject to depreciation, and thus the value of the property is offset with depreciation expense. It is also common for property and equipment to be attached to liabilities for mortgages and loans.

    • 9

      Identify intangible assets. These include items such as copyrights, trademarks, customer lists and trade names. These items are the least liquid long-term assets because it is not easy to convert them to cash, although the items still hold a significant value to the company.

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