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Assets: What are the assets in accounting terms? Why are the assets important to business?



The items that have economic value and that are owned by a person or a business entity, are called as assets in accounting terms. Assets can be categorized in Current Assets and Non current Assets. The difference between current assets and non current assets may be understood in this way that the current assets can be converted to cash in twelve months period or within the normal operating cycle of a business, whereas non current assets are not easily converted to cash in twelve months period or within the normal operating cycle of a business. That is to say, the benefits associated from non current assets are taken more than a year.

Current assets:
Cash and Cash Equivalents
Marketable Securities
Accounts Receivables
Inventory
Prepayments.

Non current assets:
Fixed Assets, also known as Property, plant and equipment, generally indicated as PP&E including land, building, vehicles etc.
Intangible Assets:: Such as, good will, copyrights, patent and trademarks or there may be other rights and people’s knowledge as well.
Long term Investments

Assets are vitally important elements of a business organization's Balance Sheet. In fact, each and every element of assets, having been categorized in current and non current, has its own value and importance, but Let us discuss briefly about few of them:

The importance of assets in terms of current assets may be observed in this way that they are the part of working capital, that is, the term working capital refers to the excess of the current assets over the current liabilities. - Current liabilities are those that are to be settled in twelve months period. They are: Accounts payable, unearned revenues and wages payable etc. However, the amount of money having been in excess over current liabilities is very much useful to a business. It is used for day-to-day requirement of a business. It is also needed for the payment of ongoing operations or to meet routine payments of a business. Moreover, certain amount of money is set aside in order to provide for unforeseen events.

As regards non current assets, the relative importance of fixed assets may also be observed that they are to be used in producing goods and services. Fixed assets may be regarded as the secure source of earnings of a business. In this way, assets can increase the wealth of the owners, as such, there is always a need of effective management of assets including current and non current assets.

Written by:
K.A.Fareed (Fareed Siddiqui)
Writer, Trainer, Author, Vba/Vb Developer
BBA; MBA-Finance; M.Phil-Financial Management; (PhD-Management)
MA-English; M.Phil-English
Pursuing CMA-USA
Individual Member of Institute of Management Consultants of India

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POSTED BY FAREED SIDDIQUI On 2013-02-19
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