Explaining Assets in terms of Accounting

Whenever we analyze or examine the balance sheet of a company the first heading that comes is that of current assets. Current assets may be referred to cash or other physical resources that can be converted into cash in given operating period. Where the operating cycle is the time period starting from a company’s purchasing inventory to the time when it earn some profit by making sales.

Accounts receivable are also a form of assets of a company however it is not sure when and how a company is going to receive all its account receivable from the customers who have purchased goods from the company at credit. Although accounts receivable can be counted as assets but the truth is that some of them will turn into bad debt and will never be received by the company. So we have to make amount of account receivable less at the balance sheet as a representation of assets

Inventory is also included in the form of assets and can be valued as FIFO, LIFO and weighted average. FIFO is term stating first in first out and is applied mostly to perishable items such as food items etc. LIFO stands for last in and first out and applied to the items that are not perishable such a barrel of nails. The last one is called weighted average that has nothing to do with the storage time such as gas in the gas station or petrol in a tank is an example of weighted average.

Assets are not only collection of cash but they constitute a number of other logical and physical resources as well such as buildings, land, vehicles and other things that hold some worth for the company.

Other Related Accounting Articles:

• Liquidity Index
• Average Balance
• Permanent Current Assets
• Accounts Receivable Collection Period
• Periodic Inventory System Definition
• First In First Out (FIFO) – Materials and Inventory Costing Method
• Accounts Receivable Financing
• Current Liabilities Explained
• Accounting Equation
• Accounting for bad debts and early payment discounts