Basic Accounting - Assets

Banks have a lot of loans and accounts receivables. Contracts are assets. Balance sheets are supposed to be set up to have economic substance.

Operating Cycle: Cash →purchases →inventory →sales →receivables →cash.

Balance sheets are organized from most to least liquid assets. Intangibles are recorded last.

The following are current assets (assets that last under a year):

1.      Accounts Receivable: Amounts owed to businesses for 10-60 days.

2.      Cash: Short-term interest-bearing securities, currency, or accounts.

3.      Inventory: goods held for sale.

4.      Prepaid Expenses: Payments in advance for business expenses.

The following are long term assets (assets that last over a year):

1.      Property/Plant/Equipment: land, buildings, machinery, tools, fixtures, and office items.

2.      Long Term Investments: stocks/bonds held for sale.

3.      Intangibles: contracts, copyrights, good will, and legal rights.

4.      Goodwill: purchased assets over the balance sheet assets (usually after a merger).

5.      Other: Long term receivables, deferred income tax, and etc.

Generally, PPE minus depreciation plus new capital expenditure is the net amount of PPE (or the end amount).

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