Business Finance Articles

All money coming into or going out of a business is recognized on the balance sheet as an asset, a liability or owners’ equity.

An asset is anything a company owns that has future value. Cash, property, equipment, inventory, accounts receivable, investments, vehicles, and intellectual property such as copyrights, trademarks and patents are assets.

Assets can be current or long-term according to the ease with which they can be liquidated. Current assets can be easily converted into cash within a year. Examples are cash, checking accounts, accounts receivable and notes receivable that are due within a year.

The term “fixed asset” refers to land, buildings and equipment that are used in connection with the business. Although land is considered a fixed asset, it is not depreciated like other fixed assets because it doesn’t wear out.

Fixed assets such as buildings, office equipment, machinery and vehicles are depreciated over time.

Liabilities include all debts and obligations owed to outside creditors, vendors, employees or banks.

Common liabilities are accounts payable, payroll, and building or equipment lease costs.

Total current liabilities is the sum of all liabilities that must be paid within one year. Long-term liabilities are debts or obligations owed that are due more than a year out.

At any given time, a company’s assets must equal its liabilities plus owners’ equity.

Understanding assets and liabilities can help a business owner gauge his or her company’s financial health and plan for future growth.