Accounting: Assets and Liabilities

Assets

• Resources owned or controlled by a business
• Expected to generate future economic benefits
• Examples:
  • Current assets:
    • Cash
    • Accounts receivable
    • Inventory
    • Prepaid expenses
  • Non-current assets:
    • Property, plant, and equipment
    • Investments
    • Intangible assets (e.g. patents, copyrights)

Liabilities

• Debts or obligations that a business must pay or settle
• Expected to be settled in the future
• Examples:
  • Current liabilities:
    • Accounts payable
    • Short-term loans
    • Accrued expenses
  • Non-current liabilities:
    • Long-term loans
    • Bonds payable

Equity

• Residual interest or claim on assets after deducting liabilities
• Represents ownership interest in a business
• Examples:
  • Common stock
  • Retained earnings
  • Treasury stock

Financial Statements

• Prepared to provide stakeholders with financial information about a business
• Four main financial statements:
  1. Balance Sheet
     • Presents a snapshot of a business's financial position at a specific point in time
     • Includes assets, liabilities, and equity
  2. Income Statement
     • Reports revenues and expenses over a specific period of time
     • Calculates net income or profit
  3. Statement of Cash Flows
     • Reports inflows and outflows of cash over a specific period of time
     • Classifies cash flows into three categories: operating, investing, and financing
  4. Statement of Changes in Equity
     • Reports changes in equity over a specific period of time
     • Includes dividends, share repurchases, and changes in retained earnings

Assets

• Resources owned or controlled by a business that generate future economic benefits
• Classified into two categories:
  • Current assets:
    • Expected to be converted into cash within one year or within the business's normal operating cycle
    • Examples: cash, accounts receivable, inventory, prepaid expenses
  • Non-current assets:
    • Expected to be held for more than one year or beyond the business's normal operating cycle
    • Examples: property, plant, and equipment, investments, intangible assets (e.g. patents, copyrights)

Liabilities

• Debts or obligations that a business must pay or settle in the future
• Classified into two categories:
  • Current liabilities:
    • Expected to be paid within one year or within the business's normal operating cycle
    • Examples: accounts payable, short-term loans, accrued expenses
  • Non-current liabilities:
    • Expected to be paid beyond one year or beyond the business's normal operating cycle
    • Examples: long-term loans, bonds payable

Equity

• Residual interest or claim on assets after deducting liabilities
• Represents ownership interest in a business
• Examples: common stock, retained earnings, treasury stock

Financial Statements

• Prepared to provide stakeholders with financial information about a business
• Four main financial statements:

Financial Statement Purpose

• To provide stakeholders with a comprehensive view of a business's financial position and performance

Balance Sheet

• Presents a snapshot of a business's financial position at a specific point in time
• Includes assets, liabilities, and equity

Income Statement

• Reports revenues and expenses over a specific period of time
• Calculates net income or profit

Statement of Cash Flows

• Reports inflows and outflows of cash over a specific period of time
• Classifies cash flows into three categories: operating, investing, and financing

Statement of Changes in Equity

• Reports changes in equity over a specific period of time
• Includes dividends, share repurchases, and changes in retained earnings

Understand the concept of assets and liabilities in accounting, including current and non-current assets, and how they are expected to generate future economic benefits.