Question

Discuss the various classifications of assets on the balance sheet. Why are they important?

Answer 1

Followings are the various classification of assets on the balance sheet;

1. Current assets;

Current assets are those assets which can be converted into cash within an accounting cycle. Current assets includes; cash, accounts receivable, prepaid expenses, inventory etc.

2. Non-current assets;

Non-current assets are those assets which are help for long-term purpose in the business. Non-current assets are; plant, equipment, machinery, furniture etc.

3. Tangible assets;

Tangible assets are those which can be touched & felt and kept for long-term benefits of the business. Such as plant, equipment, machinery, furniture etc.

4. Intangible assets;

Intangible assets are those which generate revenues for the business in long time period but can not be touched such as; patent, copyright, trademark, goodwill, brand etc.

5. Operating assets;

Operating assets are those assets which used for normal operating activities of the business.Such as; Cash, Stock, Building, Machinery, Equipment, Patents, Copyrights, Goodwill etc.

6. Non-operating assets;

Non-operating assets are those assets which are not used in normal operations of the business such as; Marketable securities, short-term investments, vacant land etc.

Classification of assets is very important due to followings reasons;

1. It will help in showing more accurate image of the business.

2. It will helpful in knowing exact image of operating and non-operating assets of the business.

3. Various stakeholders can understand more accurately about the assets of the business.

4. Proper classification of the assets will be helpful in knowing allocation of funds amongst current and non-current assets etc.