A balance sheet is nothing but a representation of assets and liabilities of a company at a particular point of time. In India liabilities are shown on left side of the balance sheet and assets are shown on right side.
Assets are anything owned by the company whether it is tangible or intangible. Assets can be classified into below 3 categories
1. Quick Assets
2. Current Assets
3. Long term Assets
Quick assets are those which are in the form of cash or which can be quickly converted to Cash. They show the liquidity of a company which means the company’s capability to meet its immediate obligations.
Usually quick assets are treated as the current assets excluding inventory.
These are the assets which can be converted into cash within one year. Accounts Receivable, Cash in bank, Inventory, Prepaid expenses and insurance, marketable securities etc are the examples of current assets.
The percentage of current assets to total assets should not be very low. A low value represents the company’s inability to meet its day-to-day obligations. It should not be very high. A high value means the company is not focusing on long-term project implementation and not utilizing the assets in a proper way.
A Current Ratio is defined as the ratio of current assets to current liabilities. It’s an important ratio in analyzing a company’s liquidity.
Long Term Assets
These are the assets which company doesn’t want to convert into cash in the foreseeable future. Also these assets can’t be converted to cash quickly in the market. Land value, building, furniture, machinery and equipment come under this category.
Long Term Assets’ value after deducting the depreciation is reported in Balance Sheet. In most of the Accounting rules the purchase price of long term assets is shown in balance sheets which may differ from market price at the time of reporting.ADVERTISEMENTS