Classification Of Assets And Liabilities

Assets may be grouped as follows:–

In order of Liquidity In order of Performance

Liquidity: Liquidity means the case with which assets may be converted into cash. Assets which are most difficult in this respect are written last.

Permanence: Assets which are to be used permanently in the business and are meant to be sold are written first.

Assets and Liabilities may be classified as –

• Fixed Assets
  • Tangible fixed assets.
  • Intangible fixed assets.
  • Investments (long-term)
• Current Assets

Fixed Assets: Fixed asset is an asset acquired for continuing use within the business with a view to earning income or making profits from its use either directly or indirectly. A fixed asset is not acquired for sale to a customer.  A tangible fixed asset is a physical asset, e.g. Plant & Machinery. An intangible fixed asset is nothing but an asset which does not have a physical existence, e.g. Goodwill. An investment might also be a fixed asset, investment purchased with a view to holding them for more than a year are classified as fixed assets.

Current Assets: Current assets are either items owned by the business with the intention of their resale or cash including cash at bank deposited by the business. These assets are "Current" in the sense that they are continuously flowing.

Other current Assets are:–

Short term investment. This includes short term trade investment.

Prepayments: These are amounts which are already paid by the business for benefits which have not yet been consumed.

Trade Debtors: These are debtors to the business for supply of goods to them.

Liabilities:

These are debts of the business that must be paid within one year. They are –

• Loans payable within a year.
• Bank Overdraft.
• Trade creditors for supply of goods.
• Bills of exchange.
• Outstanding payments.
• Interest on loans due and accrued but not paid.

Long term liabilities:

Long term liability is a debt which is not payable within one year.

Owners equity or capital.

The amount owing to the proprietors as capital is shown separately.