Question

In my class we are being asked to post responses to questions others have answered. Below is the what I need to respond to. Any help you can give me would be appreciated. I am also being required to post a reference with this so if you could help with a reference that would be great. Thank you so much!

Class, Current assets are “Current assets include all the items the business owns that can easily be converted to cash within a year’s time”(O’Neil, 2017) This includes things like the amount of cash on hand, inventory that is owned, accounts payable. Long term assets are typically larger investments such as property, machinery, equipment specific to the type of business. These investments are simply not as easy to liquidate as items listed in the current assets section, they also lose value over time. Current liabilities are balances on credit cards, small bank notes as well as what will be owed on larger notes within the next year. “If you’ve borrowed money from a bank or mortgage broker, the loan will show up in two places — the amount due within one year will show up in current liabilities, and the amount due after one year will show up in long-term liabilities” (O’Neil, 2017). Long term liabilities are considered as large loans that will still be due after one year, as well as other ongoing financial obligations such as pension programs…etc. I think it is important for assets as well as liabilities to be distinguished between these two categories because it separates what is the most current in terms of what will be due this year, versus what the company knows they already have the funds to pay. When a company knows what money, they will need to bring in over the next year, they can better build a budget. When a company also knows exactly what notes will take more than one year to pay off then they can develop a detailed financial plan going forward and determine what long term assets will hold up their liabilities as well as make more accurate decisions on future investments.

Answer 1

You can give the response with reference to the following briefing...

The Definition of Current Assets itself states that it is an Asset holds by a company which can be easily be sold or consumed with in the normal course of business especially during a short period of time , ie below one year. It is also called Liquid asset because the liquidity of current assets will be very high. We can convert these assets into cash at any time. It’s usually used to settle the current liabilities. The difference between Current Assets and Current Liabilities called as working capital, by which the company runs its business in the process or operating cycle. Current Assets include Cash in Hand, Stock on inventory and accounts receivable etc. Accounts payable is not current assets. It’s a liability and falls under the heading current liability.

Long term assets are fixed in nature and cannot be converted into cash quickly. These Fixed assets are intended to use for long term in the business. Depreciation will be calculated over the fixed assets every year and considered as a business expense.

Current liabilities are companies’ short term financial obligation and are due within one year. It includes accounts payable, short term debt, accrued expenses and dividend payable. The long term debt will falls under the long term liabilities. The information regarding the Assets and liabilities of a company reports in the Balance sheet which gives a statement of business assets, liabilities and shareholders’ equity at a particular point of time. It is one of the three fundamental financial statements used to evaluate a business. All the financial statements are presented and reported as per a generally accepted accounting standard which gives you a clear picture about the financial position of a business. This helps the business owners to make correct decision and also to a outsider like investors to evaluate and make an appropriate decision for their investments.