Assets represent the property of the business, whereas liabilities represent the claims of the business. The assets and liabilities shown in the Balance Sheet can be classified on the basis of their nature as follows. In this article, we will talk about the Classification of Assets.
Classification of Assets
The assets can be classified as follows:
These are the assets that are acquired for use in the business for a long period of time, generally more than one year. These assets are not meant for resale, rather, these are used for the production or rendering of goods and services. These assets help the business to earn the income. For example, Machinery, Building, Goodwill, Plant, Furniture, etc. These assets are recorded in the Balance Sheet at cost after deducting depreciation. These assets include both tangible as well as intangible assets.
Tangible Assets are those assets that have physical existence. This implies that these assets can be seen or touched. For example, Plant, Furniture, Loose Tools, etc.
Intangible Assets are those assets that do not have any physical existence. It implies that these assets cannot be seen or touched. For example, Goodwill, Patents, Trademarks, etc.
These are the assets that are acquired by a firm with the purpose of resale in the business in order to generate revenues. These assets are held for a short period of time. In simple words, current assets can be defined as the assets which are in the form of cash or which can be easily converted into cash within a period of one year during normal business activities. Examples of these assets are debtors, bills receivables, stock, cash in hand, prepaid expenses, etc.
There may be some expenditures or losses that are written-off over some years and the full amount is not charged from the profits of the accounting year in which they are incurred. Only a portion of such expenses or losses is written off from the current accounting year. The portion of expenditure not written-off is shown on the Assets side of the Balance Sheet under the head Miscellaneous Expenditure. For example, Advertisement suspense, debit balance of Profit and Loss Account, etc. These are not actually the assets but are still recorded in the Balance Sheet for writing them off over some years.
Trading Account is an account that is prepared to ascertain the trading results of a firm in form of gross profit earned or gross loss incurred during an accounting period.
Users of Financial Statements
The users of financial statements can be broadly classified as Internal Users and External Users. Internal Users are the users who have direct access to the financial statements
Financial statements reveal the profitability and financial position of a business at the end of the accounting year. It provides financial information to various accounting users that
What is a Promissory Note?
A promissory note is an unconditional promise in writing given by the buyer (or creditor) to the seller (or debtor) to pay the amount of money specified therein to the seller or to the order of seller or to bearer.