As a bookkeeper, we provide reports to clients for them to know the health of their businesses. Two of the main reports are the Profit and Loss (also known as the Income Statement) and Balance Sheet.
Sometimes clients don’t understand what each type of account represents and how the information appears on reports. The next few posts I share will discuss the different types of accounts and how the information affects your reports. Today I’ll discuss Asset accounts.
Assets represent ownership of value that can be converted into cash (although cash itself is also an asset).
1) Current Assets
- a) Cash/Cash Equivalents – The most liquid which includes currency, deposit accounts, and negotiable instruments such as checks and money orders
- b) Receivables – Money owed to the business by customers, employees, suppliers, or another party
- c) Inventory – Items available for sale
- d) Prepaid expenses – Expenses paid in cash before they are consumed
2) Fixed Assets
- a) Land
- b) Buildings
- c) Machinery
- d) Furniture
- e) Equipment
3) Intangible Assets
- a) Patents – A set of exclusive rights given to an inventor for a limited period of time in exchange for public disclosure of an invention
- b) Copyrights – A set of exclusive rights given to the creator of an original work for a limited period of time in exchange for public disclosure of the work
- c) Franchises – The right or license granted by a company to an individual or group to market its products or services in a specific territory
- d) Goodwill – Difference between the purchase price and the sum of the fair value of the net assets
- e) Trademarks – A distinctive sign to identify products or services that originate from a unique source and to distinguish their products/services from other entities