4.19: Creating a Complete Balance Sheet: Assets

The asset side of a balance sheet shows what a company owns at a specific time. It is typically organized in order of liquidity—how quickly an asset can be converted to cash. Assets are divided into two main categories: current and non-current (or fixed).

Current Assets are short-term and expected to be converted into cash within a year. These include:

• Cash and cash equivalents: The Most liquid assets, like cash in hand or bank balances.
• Accounts receivable: Amounts owed by customers.
• Inventory: Goods available for sale.
• Short-term investments and prepaid expenses: Investments that mature soon or expenses paid in advance.

Non-current Assets are long-term investments that cannot be readily liquidated within a year. These include:

• Property, Plant, and Equipment (PPE): Tangible assets in operations like machinery, buildings, or vehicles.
• Intangible Assets: Non-physical assets like patents, copyrights, or goodwill.
• Long-term investments: Investments held for more than one year.
• Deferred tax assets: Tax benefits available for future use.

Each asset is listed with its book value, and together they represent the total assets of a business. The asset side must always equal the sum of liabilities and shareholders' equity, forming the basis of the accounting equation: Assets = Liabilities + Equity.

Properly preparing the asset side provides insight into a firm’s operational strength and financial health.

A balance sheet is a financial statement that shows a company’s financial position at a specific time.

The assets on a balance sheet represent everything the company owns with measurable value.

Assets are typically divided into current assets and non-current assets.

Current assets include cash, accounts receivable, and inventory expected to be converted into cash within one year.

Non-current assets include property, plant, equipment, and intangible assets like patents, which provide value over a longer period.

The values of current and non-current assets are added together to calculate total assets.

For example, if Delta Corporation has cash worth fifty thousand dollars, accounts receivable of seventy thousand dollars, and inventory valued at eighty thousand dollars, its total current assets amount to two hundred thousand dollars.

If its property, plant, and equipment are cumulatively valued at eight hundred thousand dollars, then its non-current assets are eight hundred thousand dollars.

Delta Corporation’s total assets amount to one million dollars.

Accurate asset reporting ensures stakeholders can assess Delta Corporation’s financial strength and make informed decisions.