Assets liabilities and Capital

Assets liabilities and Capital

Assets-

Assets are valuable economic resources of an enterprise, that can be expressed in terms of money and useful in the operations of a business enterprise.
Examples:  Land, Building, Machinery, plant, furniture, Motor Vehicle, Goodwill, Patent, Trademark, copyright, software, Debtors, stock, Bills Receivable, Loose tools, spare parts, Cash in hand, and cash at bank, etc. 

Definitions of Assets-

According to Prof. R.N., Anthony “Assets are valuable resources owned by a business which are acquired at a measurable money cost” 

According to Finney & Miller “Assets are future economic benefits, the rights of which are owned or controlled by an organization or individual”

Main Features of Assets-

  • Assets should be owned by the business.
  • It may be tangible form or intangible form.
  • It should have some value attached to it.
  • It should have been acquired at a measurable money cost.

Assets can be broadly classified as:

1. Non-Current Assets:

Non-Current Assets are those assets that are held for long period and used for normal business operations.

Examples: Land, Building, Machinery plant,   furniture and Goodwill, Motor Vehicle etc. They are further   classified into:

(a)Tangible Assets: Tangible Assets are those assets that have physical existence and can be seen and touched.

Examples:  Land, Building, Furniture, Machinery, Plant, Motor Vehicles, computer, etc.

(b) Intangible Assets: Intangible Assets are those assets that have no physical existence and can be felt by operation and can not be seen and touched.

Examples: Goodwill, Patent, Trademark, copyright, software, etc.

Assets liabilities and Capital

2. Current Assets:

Current Assets are those assets that are held for short period and can be converted into cash within one year. The balance of such items goes on fluctuating i.e.it keeps on changing throughout the year.

Examples: Debtors, stock, Bills Receivable, Loose tools, spare parts, Cash in hand, cash at Bank etc.

3. Fictitious Assets:    

Fictitious Assets are those assets which neither have any real value nor have any physical form, but are called assets on the basis of legal grounds.

Or

Fictitious assets are the expenses or losses which are not fully written off (not offset in the Profit and Loss A/c) during the particular accounting period. These are to be shown on the assets side of the balance sheet.

Fictitious Assets are neither tangible assets nor intangible assets.

Examples of Fictitious Assets-

  1. Advertisement Suspense Account,
  2. Discount on issue of debentures,
  3. Underwriting Commission,
  4. Preliminary Expenses,
  5. Profit and loss (Debit balance),
  6. Deferred revenue Expenditure,
  7. Expenses on issue of debentures,
  8. Expenses on issue of Shares etc.

 

Assets liabilities and Capital

liabilities-

Liabilities are obligations or debts that an enterprise has to pay after some time in the future. Examples: Creditors, Bills payable, Bank Loan, Outstanding Expenses, Income received in advance, Bank Overdraft, Cash Credit etc. Liabilities can be classified as :

1. Current Liabilities:

Current Liabilities are obligations or debts that are payable within a period of one year. For Example : Creditors, Bill Payable, Bank overdraft, cash credit, Outstanding Expenses, Income received in advance, etc.

2. Non-Current Liabilities:

Non-Current Liabilities are those obligations or debts that are payable after a period of one year. Examples:  Bank Loan, Debentures, Long term Loan, etc.

3. Internal Liability:

A Liability owed by a business to the owner is an internal liability or owner’s Equity.

4. External Liability:

Liability that is payable to outsiders is known as external liability. Examples:  Creditors, Bill Payable, Bank overdraft, cash credit, Outstanding Expenses, Income received in advance etc.

5. Contingent Liabilities:

These are those Liabilities that will become payable of an uncertain future event, otherwise not.  Or Contingent Liabilities are those Liabilities that are not certain at the time of preparing the balance sheet. Contingent Liabilities are not shown in the balance sheet. However, they are disclosed by way of a footnote just below the balance sheet.
For Examples:
1. Bills of exchange discounted with bank but not yet matured,
2. Guarantees were given by the firm,
3. Claim against the company not acknowledged as debt.

Assets liabilities and Capital

Capital-

The amount in the shape of money or money’s worth invested by the proprietors in the business enterprise is known as capital. This amount is increased by the amount of profits earned by business enterprise and the amount of additional capital introduced. It is decreased by the amount of losses incurred by business enterprise and the amount withdrawn by proprietors for their personal from the business. Capital is also known as Owner’s Equity Or Networth Or Internal Liability Or Proprietor’s Fund.
Capital = Total Assets-Total External Liabilities

For example:  if Mr.X starts a business with Rs.8,00,000, his capital would be Rs.8,00,000.

For example: if Mr.Y starts business with cash  Rs.9,00,000, and Goods Rs. 1,00,000 his capital would be Rs.9,00,000+1,00,000= 10,00,000

For example: if Mr.Z starts business with cash  Rs.7,50,000, and Goods Rs. 1,00,000 and machinery Rs. 1,50,000 his capital would be Rs.7,50,000+1,00,000+150,000 = 10,00,000.

Assets liabilities and Capital

Also Read: List of current assets and current liabilities

Also Read: Tangible vs Intangible Assets

Also Read: Liquid Ratio Or Quick Ratio Or Acid Test Ratio

Also Read:Real Account Examples List

 

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