Assets, Liabilities, and Capital Flashcards
IFRS means…?
The International Financial Reporting Standards
It is a resource controlled by the enterprise as a result of past events and from
which future economic benefits are expected to flow to the enterprise
Asset
What are the three properties of an asset?
- Ownership
- Economic Value
- Resource
Classifying assets based on how easy it is to convert them into cash.
Convertibility
Classifying assets based on their physical existence (in other words,
tangible vs. intangible assets).
Physical Existence
Classifying assets based on their business operation usage/purpose.
Usage
If assets are classified based on their
convertibility into cash, assets are classified as either current assets or fixed assets. An
alternative expression of this concept is short-term vs. long-term assets.
Classification of asset as to Convertibility
Are assets that can be easily converted into cash and cash equivalents (typically within a year).
Current Assets
Examples of Current Assets:
o Cash o Cash equivalents o Short-term deposits o Stock o Marketable securities o Office supplies
Are assets that cannot be
easily and readily converted into cash and cash equivalents.
Non-Current Assets or Fixed Assets
Examples of non-current or fixed
assets include:
o Land o Building o Machinery o Equipment o Patents o Trademarks
If assets are classified based on their
physical existence, assets are classified as either tangible assets or intangible assets.
Classification of asset as to Physical Existence
Are assets that have a physical existence (we can
touch, feel, and see them)
Tangible Assets
Examples of tangible assets include:
o Land o Building o Machinery o Equipment o Cash o Office supplies o Stock o Marketable securities
Are assets that do not have a physical existence.
Intangible Assets
Examples of intangible assets include:
o Goodwill o Patents o Brand o Copyrights o Trademarks o Trade secrets o Permits o Corporate intellectual property
If assets are classified based on their usage or
purpose, assets are classified as either operating assets or non-operating assets.
Classification of assets as to Usage
are assets that are required in the daily operation of
a business. They are used to generate revenue from a
company’s core business activities.
Operating Assets
Examples of operating assets include:
o Cash o Stock o Building o Machinery o Equipment o Patents o Copyrights o Goodwill
Are assets that are not required for daily
business operations but can still generate revenue.
Non-Operating Assets
Examples of non-operating assets
include:
o Short-term investments
o Marketable securities
o Vacant land
o Interest income from a fixed or time deposit
It is a
present obligation of the enterprise arising from past events, the settlement of which is expected to
result in an outflow from the enterprise of resources embodying economic benefits.
Liabilities
Are liabilities that are due and payable within one year.
Current liabilities (short-term liabilities)
Are liabilities that are due after a year or more.
Non-current liabilities (long-term liabilities)
Are liabilities that may or may not arise, depending on a certain event.
Contingent liabilities
It should be closely watched by management to make sure
that the company possesses enough liquidity from current assets to guarantee that the debts or
obligations can be met.
Current Liabilities
Examples of current liabilities:
- Accounts payable
- Interest payable
- Income taxes payable
- Bills payable
- Bank account overdrafts
- Accrued expenses
- Short-term loans
Current assets divided by current liabilities
The current ratio
Current assets, minus inventory, divided by current liabilities
The quick ratio
Cash and cash equivalents divided by current liabilities
The cash ratio
Are debts or obligations that are due
in over a year’s time. Long-term liabilities are an important part of a company’s long-term
financing.
Non-current Liabilities
List of non-current liabilities:
- Bonds payable
- Long-term notes payable
- Deferred tax liabilities
- Mortgage payable
- Capital leases
Are liabilities that may occur, depending on the outcome of a future event.
Contingent Liabilities
Examples of contingent liabilities:
- Lawsuits
- Product warranties
It is also known as net assets or equity; It refers to what is left to the owners after all liabilities
are settled.
Capital
Capital is affected by the
following:
- Initial and additional contributions of owner/s (investments),
- Withdrawals made by owner/s (dividends for corporations),
- Income, and
- Expenses.
Owner contributions and income (increase, decrease) capital.
Increase
Withdrawals and expenses (increase, decrease) capital.
Decrease
The terms
used to refer to a company’s capital portion varies according to the form of ownership. In a sole
proprietorship business, the capital is called?
In partnerships, it is?
and in corporations?
Owner’s Equity or Owner’s Capital;
Partners’ Equity or Partners’ Capital;
, Stockholders’ Equity.
