In any business, assets are the whole and soul of a company. From the office building to the employees, to the logo everything is an asset. In plain words all that you see and also investments that you don’t see all are of value. And it is through these that the company’s performance is judged.
In finance there are two types of assets Current asset and Long term Asset. Both are of equal importance. In order to understand their role in a business you need to grasp the difference between the two and how both work in tandem in order to increase the profitability of a company.
A Balance Sheet Shows Both The Current As Well As Fixed Assets
Current Assets: These assets are short term assets and can be converted into cash in the fiscal year. Current assets are meant to ease the day to day working of a company. Therefore they are considered to be liquid. The types of current assets are as follows:
Cash and Cash equivalents: The day to day running of a company requires cash. Commercial paper, bank certificates of deposits, treasury securities come under cash and cash equivalents.
Accounts Receivable: The credit given to customer is known as accounts receivable.
Inventory: The raw materials, stationery, labor and materials come under inventory. Finished goods also come in this category.
Prepaid expenses: Expenses such as prepaid insurance that covers 12 months are placed in this section. Similarly prepaid rent too is absorbed in this category.
Short investments that that can be sold or converted into cash in the next twelve months are also current assets.
Cash Advance is a kind of advance payment made to get some work done. It can be used to purchase inventory or plan an event.