Asset Accounts Definition List Current And Fixed Assets Account

Asset Accounts Definition

Changes in asset values on a company’s books have to reflect in either the Profit and Loss Statement or the Cash Flow Statement.

An example would be if accounts receivable increased on the books; it meant an outflow of cash on the Cash Flow StatementCash Flow StatementA Statement of Cash Flow is an accounting document that tracks the incoming and outgoing cash and cash equivalents from a business.read more. Similarly, if inventories decreased in the books, it means an inflow of cash due to products getting sold. A decrease in the gross block is expensed on the P&L through depreciation, and an increase in the gross block is reflected by CapexCapexCapex or Capital Expenditure is the expense of the company’s total purchases of assets during a given period determined by adding the net increase in factory, property, equipment, and depreciation expense during a fiscal year.read more capital expenditures under the Cash Flow Statement.

You are free to use this image on you website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Asset Accounts (wallstreetmojo.com)

What do Asset Accounts tell us?

Once you understand how changes in assets reflect on the Financial StatementsFinancial StatementsFinancial statements are written reports prepared by a company’s management to present the company’s financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more, it is important to understand how investors look at asset accounts of individual companies and match them with the industry to identify operating trends. For example, we can compare companies operating across different industries and compare how much $ of revenue a tech company generates for every $ of capital invested vs. a manufacturing company.

We can also compare companies operating in the same industry as Walmart, Target, and Costco to determine which are converting products to cash the fastest and most efficiently. Investors can also identify trends across the entire industry. E.g., An agrochemical company’s receivables could be continuously increasing due to the declining profitability of farmers. Such a trend would be visible across the Balance Sheet of the entire spectrum of agrochemical companies, and it helps an investor identify that the industry is going through stress.

List of Asset Accounts

What is a Fixed Assets Account?

Also known as Non Current or Gross Block. These are investments made by the company in tangible and intangible assets, which the company believes will generate revenues in the future.Tangible assets include property, machinery, equipment, land, and buildings. Intangible assetsIntangible AssetsIntangible Assets are the identifiable assets which do not have a physical existence, i.e., you can’t touch them, like goodwill, patents, copyrights, & franchise etc. They are considered as long-term or long-living assets as the Company utilizes them for over a year. read more include patents, registrations, trademarks, and software.It is generally treated as “CAPEX” and is an investment that the company believes will generate meaningful revenues. A decision to incur Capex or not is based on the industry’s life cycle, as well as the return on capital that can be generated.

How to analyze Fixed Asset?

The fixed assetThe Fixed AssetFixed assets are assets that are held for the long term and are not expected to be converted into cash in a short period of time. Plant and machinery, land and buildings, furniture, computers, copyright, and vehicles are all examples.read more can be used to compare companies operating in the same industry and different industries. E.g., a company with an asset-light model like recruitment could generate equal revenues as a manufacturing company, requiring lots of investment in plant, machinery, etc. It gives the company the asset-light model a high asset turnover ratioHigh Asset Turnover RatioThe asset turnover ratio is the ratio of a company’s net sales to total average assets, and it helps determine whether the company generates enough revenue to justify holding a large amount of assets under the company’s balance sheet.read more, measured by Sales/Average Non-Current Assets.However, the company generating higher revenue per dollar of non-current assets doesn’t need to be a better investment. Manufacturing brings with its stickiness and a sustainable advantage; hence an investor must look at the overall scheme of things in the balance sheetBalance SheetA balance sheet is one of the financial statements of a company that presents the shareholders’ equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner’s capital equals the total assets of the company.read more and not one line item while making an investment decision.

What are the Current Assets?

The current assetCurrent AssetCurrent assets refer to those short-term assets which can be efficiently utilized for business operations, sold for immediate cash or liquidated within a year. It comprises inventory, cash, cash equivalents, marketable securities, accounts receivable, etc.read more includes working capital investmentsCapital InvestmentsCapital Investment refers to any investments made into the business with the objective of enhancing the operations. It could be long term acquisition by the business such as real estates, machinery, industries, etc.read more for inventory, receivables that need to be collected from customers, and other liquid assets like current investments, fixed deposits, cash, and bank balances.Working capital is essential for every business and is necessary to carry out all the operations effectively. A company’s bargaining power can impact its working capital requirements.Suppose the company commands superior pricing power over its customers and suppliers. In that case, it will be able to collect cash from its customers first and then pay its suppliers later, which will result in a positive net working capitalNet Working CapitalThe Net Working Capital (NWC) is the difference between the total current assets and total current liabilities. A positive net working capital indicates that a company has a large number of assets, while a negative one indicates that the company has a large number of liabilities.read more.

How to analyze Current assets Account?

Current assets account to reflect what is going on with the company’s day-to-day operations. The amount is reported once every quarter in the SEC 10-Q filing in public entities. It is extremely important to look at current assets as it indicates whether growth in revenues is being translated into cash or not. Most analysts make the mistake of ignoring the Balance Sheet and focusing on the P&L. Do not be that one!!So, if a company’s P&L indicates that it has grown revenuesRevenuesRevenue is the amount of money that a business can earn in its normal course of business by selling its goods and services. In the case of the federal government, it refers to the total amount of income generated from taxes, which remains unfiltered from any deductions.read more by 35% YoY and the receivables have also increased by a similar proportion, the company has sold all its products on credit and has not yet collected the cash. The increase in receivables is an asset (cash) that the company believes will materialize in the future. It is a common practice in companies operating across working capital-intensive industries. In that instance, we must compare firms by examining their cash conversion cycleCash Conversion CycleThe Cash Conversion Cycle (CCC) is a ratio analysis measure to evaluate the number of days or time a company converts its inventory and other inputs into cash. It considers the days inventory outstanding, days sales outstanding and days payable outstanding for computation.read more (days in receivables + days of inventory on hand – days in payables).

What is Financial Assets Account?

The financial assetsFinancial AssetsFinancial assets are investment assets whose value derives from a contractual claim on what they represent. These are liquid assets because the economic resources or ownership can be converted into a valuable asset such as cash.read more account is reported under Non-current as well as Current assets. The idea of the word current is to determine if it’s a short-term investment or a long-term investmentLong-Term InvestmentLong Term Investments are financial instruments such as stocks, bonds, cash, or real estate assets that a company intends to hold for more than 365 days in order to maximize profits and are reported on the asset side of the balance sheet under the heading non-current assets.read more. Generally, liquid investments are reported under current assets, whereas non-liquid investments are reported under Non-current assetsNon-current AssetsNon-current assets are long-term assets bought to use in the business, and their benefits are likely to accrue for many years. These Assets reveal information about the company’s investing activities and can be tangible or intangible. Examples include property, plant, equipment, land & building, bonds and stocks, patents, trademark.read more. Other types of assetsTypes Of AssetsAssets are the resources owned by individuals, companies, or governments expected to generate future cash flows over a long period. There are broadly three types of asset distribution: 1. Based on convertibility (current and non-current assets), 2. Physical existence (tangible and intangible assets), 3. Usage (operating and non-operating assets)read more include goodwill and deferred tax liabilitiesDeferred Tax LiabilitiesDeferred tax liabilities arise to the company due to the timing difference between the accrual of the tax and the date when the company pays the taxes to the tax authorities. This is because taxes get due in one accounting period but are not paid in that period.read more

Conclusion

Assets Accounts belong to the stakeholders, who are the debt and equity investors in the companyEquity Investors In The CompanyAn equity investor is that person or entity who contributes a certain sum to public or private companies for a specific period to obtain financial gains in the form of capital appreciation, dividend payouts, stock value appraisal, etc.read more. It is the responsibility of an investor to look at the assets reported by the company and understand its way of conducting business and if it will maximize value to shareholders in the future. Many companies are analyzed based on the assets they have on the books. The most common example is banks, as the bank’s intrinsic value is the interest it can generate from giving loans. Hence all these loans are assets for a bank, and the value of the bank is determined by its Price to Book ratio relative to other banks. The book in this context is the book value of equityThe Book Value Of EquityThe book value of equity reflects the fund that belongs to the equity shareholders and is available for distribution to the shareholders. It is computed as the net amount remaining after deducting all of the company’s liabilities from its total assets.read more, which is the book value of assets.