Assets Section of Balance Sheet

  There are three basic financial statements which are the end products of financial accounting: Balance Sheet, Income Statement and the Statement of Cash Flows. The nature and formats of the first two statements will be illustrated in this and the following two lessons. Balance sheet and Income Statement are prepared at least yearly, but it is also customary to prepare them quarterly or monthly. 

  Balance Sheet is a listing of an organization’s assets, liabilities and owners’ equity on a given date. It is designed to portray the financial position of the organization at a particular time (e.g., on January 31, 2000). As presented in Exhibit 2-1, the three major sections of the balance sheet are presented in the T-account format. This presentation allows the users to tell at a glance that total assets (e.g., ＄259 000) are being financed by two sources: ＄79 000 by the creditors(i.e., liabilities)and ＄180 000 by the owner (i.e., owner’s equity). An important aspect of this statement is that the total assets always equal the sum of liabilities and owner’s equity. This balance is sometimes described as the accounting equation: Assets = Liabilities + Owners’ Equity. This lesson deals with the assets section of a balance sheet. The liabilities and owners’ equity section will be discussed in Lesson Three.

  Assets are the economic resources of an organization that can usefully be expressed in monetary terms. The assets of Douglas Company have been further classified into current assets and long-term assets. Current assets are cash and other assets that will be converted into cash or used up during the normal operating cycle of the business or one year, whichever is longer. Current assets are usually listed in the order of their “liquidity” or convertibility into cash. Some examples of current assets other than those shown in Exhibit 2-1 are notes receivable and marketable securities. Prepaid expenses such as insurance, rent, and supplies are normally consumed during the operating cycle rather than converted into cash.

   Long-Term Assets are relatively long-lived assets used in operating an organization and may be further classified into fixed assets (or plant and equipment)and intangible assets .Fixed Assets may include land,buildings,and various kinds of equipment(machinery,store fixtures,office equipment,delivery equipment,etc.).They constitute the major category of long term assets.Depreciable assets are normally shown at their original cost.The accumulated portion of the cost taken as depreciation to date is subtracted from its original cost to obtain the book value of the asset.Intangible assets are characterized by the legal claims or rights which may include patents,trademarks,franchises,goodwill,etc.