Financial statements of any firm consist of liabilities and assets. Liabilities are the details of items which the firms owe to others and similarly the assets are the details of items which the firms own from others.
The liabilities can be classified into two types namely; long term liabilities and short term liabilities. The long term liabilities can also be called as long term sources. Similarly, the short term liabilities are called as current liabilities. In the case of assets, they are classified into long term assets and short term assets.
When it comes to liabilities, they are the sources of finance for any firm and in the cases of assets, they are the uses of finance.
What do you know by Long term assets ?: Normally the following are termed as long term assets in any balance sheet namely; land, building, machinery and other infrastructure. On account of the facts that these assets exist with the firm till its life, they are called as long term assets. Among the above mentioned assets except land, all other assets lose their value day by day on account of their uses. As such on account of depreciation the following assets namely; building, machinery and furnitures get depreciated.
What do you know by Intangible assets ?: While perusing the financial statements submitted by many firms, it can be seen that they furnish the details of intangible assets namely; goodwill, patents, copyrights, miscellaneous expenditure and preliminary expenses. Tangible assets are assets which are available in physical form and intangible assets are assets which have no physical existence. The firms furnish the information about such intangible assets for any specific purpose.
What do you know by current assets? When the assets are available for a short period they are treated as current assets. For example, cash, balance kept in banks, stock of goods, sundry debtors and advance payment made to the suppliers are called as current assets. Current assets are those assets which remain with the firm for a short period; normally for a period up to twelve months.
What is the role played by long term assets?
The long term assets are employed for generating income for the business. In the case of manufacturing industries, the machineries are utilized for manufacturing various products and the land and building are utilized for storing the goods apart from conducting office administration.
What is the role played by current assets?
Cash available with the firm and the balance available with the bankers are utilized towards current payments namely; wages payable to the workers; salaries payable to the employees and executives; electricity and telephone charges; rent payable to the premises, if any and much more.
Apart from the above, the amount is utilized towards purchasing raw materials required for the business in the case of manufacturing industries and towards the purchase of goods required for retail sales. They are termed as stock of goods. Similarly the amount available in the bank is also utilized as advance payments to be made to the suppliers for supply of goods and services and others for many other reasons.