Friday, July 3, 2009

The debt side of the balance sheet

the debt side of the balance sheet is break-down into two sections Current assets and non-current assets, this done as follows:
1- current Assets :
Current assets are those that will be converted into cast within 12 months or within one operating cycle if the operating cycle is longer than 12 months. This means that an asset that will be converted in 18 months may be classified as current asset, but all assets that will be converted in less than 12 months will always be classified as current assets.
Current assets are perhaps the easiest of the different sections of the balance sheet and include;
- cash
- cash equivalents
- inventories
- Receivables
- Certain securities
- Short-term investment maturing
- prepaid expenses
2- non-current assets
Non-current assets are those assets that will not be converted into cash within one year or during the operating cycle if the operating cycle is longer than one year.
There are a number of different categories of non-current assets. The accounting issues surrounding non-current assets are slightly more involved than current assets.
A- Long-term investment and funds that are expected to be held for more than one year are included in non-current assets. Examples of these items are:
- investment in securities made to control or influence the other organization.
- available-for-sale and held-to-maturity securities that are not current.
- funds that are restricted for non-current purposes (the retirement of debt or to pay for the construction of fixed assets).
- the cash surrender value of life insurance policy. (The cash surrender value of life insurance policy is essentially the amount that the holder of the policy would get from the insurance company if he or she cancelled their insurance.)
- fixed assets not used in operations (such as idle facilities or land held for future use).
2- property, plant and equipment (fixed assets)
These are tangible assets that are used in operations and will be used past the end of the current period. When these items are purchased they are recorded at their purchase price, and this amount is then expended over the life of the asset through depreciation.
Examples of property, plant and equipment (P.P.E) are building, machinery, equipment, cars, leasehold improvements, and assets that have been obtained through a capital lease.
3- Intangible assets
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4- other non-current assets
This is the "other" category that gets all of the non-current assets that are not included in any other category. Examples of these items are;
- long-term receivables from unusual transactions (loans to officers or employees)
- bond issue costs
- long-term prepayments
- Deferred tax assets

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