Lesson TwoASSETS SECTION OF BALANCE SHEETNew Words, Phrases and Special TermsoAsset: In common terms any object, tangible or intangible ,that is of value to its possessor.oIn most cases it either is cash or can be turned into cash; exceptions include prepayments, which may represent payments made for rent, rates, or motor licences, in cases in which the time paid for has not yet expired.New Words, Phrases and Special TermsoMost accounting bodies throughout the world would now define an asset as a result of past transactions or events.oTangible assets include land and buildings ,plant and machinery, fixtures and fittings, trading stock, investments, debtors, and cash;o Intangible assets include goodwill, patents, copyrights ,and trademarks.New Words, Phrases and Special TermsoLiability: An obligation to transfer economic benefits (generally money) as a result of past transactions (e.g. the purchase of a fixed asset or a circulating asset)oContingent liabilityoCurrent liabilitiesoDeferred creditoLong-term liabilityoSecured liabilityNew Words, Phrases and Special TermsoOwners equity oThe funds of an organization that have been provided by its owners, i.e. its total assets less its total liabilities.oThe balance-sheet value of the owners equity is unlikely to be equal to its market value.New Words, Phrases and Special TermsoLiquidityoThe extent to which an organizations assets are liquid, enabling it to pay its debts when they fall due and also to move into new investment opportunities.oLiquidity managementoLiquidity riskoLiquid ratioNew Words, Phrases and Special TermsoAccumulated depreciation (aggregate depreciation)oThe total amount of the depreciation written off the cost price or valuation of a fixed asset since it was brought into the balance sheet of an organization.New Words, Phrases and Special TermsoTangible assetoAssets that can be touched, such as land, buildings, and machinery, as compared to intangible fixed assets, such as goodwill.New Words, Phrases and Special TermsoFixed assetsoAn asset of a business intended for continuing use, rather than a short- term circulating asset (such as stock).New Words, Phrases and Special TermsoIntangible fixed assetsoFixed assets of a non-monetary nature that have no physical substance.oThe accounting treatment for intangible assets has been a controversial topic and assets, such as brands and publication titles, have appeared on the balance sheets of a number of well-known companies.New Words, Phrases and Special TermsoIntangible asset (property)oA property that cannot be possessed physically but that confers on its owner a legally enforceable right to receive a benefit, for example money.SENTENCESoFinancial statements are prepared at least yearly, but it is also customary to prepare them quarterly or monthly.SENTENCESoThis presentation allows the users to tell at a glance that total assets(e.g.,$259 000) are being financed by two sources:$79 000 by the creditors (i.e., liabilities) and $180 000 by the owner (i.e., owners equity).SENTENCESoAn important aspect of this statement is that the total assets always equal the sum of liabilities and owners equity.SENTENCESoCurrent assets are cash and other assets that will be converted into cash or used up during the normal operating cycle of the business or one year, whichever is longer.SENTENCESoLong-term assets are relatively long-lived assets used in operating an organization and may be further classified into fixed assets, or plant and equipment, and intangible assets.SENTENCESoThe accumulated portion of the cost taken as depreciation to date is subtracted from its original cost to obtain the book value of the asset.SENTENCESoThe field of public accounting is composed of firms that render independent, expert reports on financial statements of business enterprises.SENTENCESoThe services performed by these accountants parallel those of private and public accountants and may cover the entire spectrum of financial and managerial accounting.