Current assets & Long-term assets - Financial Analysis and Reporting | Financial Analysis and Reporting - B Com PDF Download

Current Assets

Current assets are the key assets that your business uses up during a 12-month period and will likely not be there the next year. Current asset accounts include the following:

• Cash in Checking: Any company’s primary account is the checking account used for operating activities. This is the account used to deposit revenues and pay expenses.
• Cash in Savings: This account is used for surplus cash. Any cash for which there is no immediate plan is deposited in an interest-earning savings account so that it can earn interest.
• Cash on Hand: This account is used to track any cash kept at retail stores or in the office. In retail stores, cash must be kept in registers in order to provide change to customers. In the office, petty cash is often kept for immediate cash needs that pop up from time to time.
• Accounts Receivable: If you offer your products or services to customers on store credit, then you need this account to track the customers who buy on your dime.
• Inventory: This account tracks the products you have on hand to sell to your customers. The value of the assets in this account varies depending upon the way you decide to track the flow of inventory into and out of the business.
• Prepaid Insurance: This account tracks insurance you pay in advance that’s credited as it’s used up each month.

Long-Term Assets

Long-term assets are assets that you anticipate your business will use for more than 12 months. Some of the most common long-term assets include:

• Land: This account tracks the land owned by the company. The value of the land is based on the cost of purchasing it.
• Buildings: This account tracks the value of any buildings a business owns. The value of the building is based on the cost of purchasing it. The key difference between buildings and land is that the building’s value is depreciated, while the value of the land is not depreciated.
• Accumulated Depreciation — Buildings: This account tracks the cumulative amount a building is depreciated over its useful lifespan.
• Leasehold Improvements: This account tracks the value of improvements to buildings or other facilities that a business leases rather than purchases. Leasehold improvements are depreciated as the value of the asset ages.
• Accumulated Depreciation — Leasehold Improvements: This account tracks the cumulative amount depreciated for leasehold improvements.
• Vehicles: This account tracks any cars, trucks, or other vehicles owned by the business. The initial value of any vehicle is listed in this account based on the total cost paid to put the vehicle in service. Vehicles also depreciate through their useful lifespan.
• Accumulated Depreciation — Vehicles: This account tracks the depreciation of all vehicles owned by the company.
• Furniture and Fixtures: This account tracks any furniture or fixtures purchased for use in the business. The value of the furniture and fixtures in this account is based on the cost of purchasing these items. These items are depreciated during their useful lifespan.
• Accumulated Depreciation — Furniture and Fixtures: This account tracks the accumulated depreciation of all furniture and fixtures.
• Equipment: This account tracks equipment that was purchased for use for more than one year, such as computers, copiers, tools, and cash registers. Equipment is also depreciated to show that over time it gets used up and must be replaced.
• Accumulated Depreciation — Equipment: This account tracks the accumulated depreciation of all the equipment.

The following accounts track long-term assets such as organization costs, patents, and copyrights. These are called intangible assets, and the accounts that track them include:

• Organization Costs: This account tracks initial start-up expenses to get the business off the ground. Special licenses and legal fees must be written off over a number of years using a method similar to depreciation, called amortization, which is also tracked.
• Amortization — Organization Costs: This account tracks the accumulated amortization of organization costs during the period in which they’re being written-off.
• Patents: This account tracks the costs associated with patents, grants made by governments that guarantee to the inventor of a product or service the exclusive right to make, use, and sell that product or service over a set period of time. Patent costs are amortized.
• Amortization — Patents: This account tracks the accumulated amortization of a business’s patents.
• Copyrights: This account tracks the costs incurred to establish copyrights. This legal right expires after a set number of years, so its value is amortized as the copyright gets used up.
• Goodwill: This account is only needed if a company buys another company for more than the actual value of its tangible assets. Goodwill reflects the intangible value of this purchase for things like company reputation, store locations, and customer base.