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Assets and Liabilities

Assets


Assets help a business generate profit. Assets are probable future economic benefits obtained or controlled by a particular entity as the result of past transactions or events. Current assets are ones that we can convert into cash in a short period of time, typically in one year (Ex: Cash, inventory, prepayments, and short-term investments.) Short-term investments can be made when a business has cash to spare. Short-term investments can be used to buy stocks. Non-current assets are long-term assets. They can't easily be converted into cash. (Ex: Long-term investments, investments, tangible and intangible assets.)


Liabilities


Liabilities are probable future sacrifices of economic benefit arising from the present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. They are a source of third-party funding that the business uses to buy assets and fund operations. Liabilities are probable future sacrifices of economic benefit arising from the present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. They are a source of third-party funding that the business uses to buy assets and fund operations. Current liabilities are a business's obligations that have to be settled one year from now. (Ex: Accounts payable, taxes payable, interest payable, accruals unearned revenue, short-term loans, etc.) Buying something on credit, means that you are agreeing to pay later. In a standard business transaction we have two parties: a buyer and a seller. The seller provides goods or services along with a bill. In return, the buyer sends cash to settle the payment. Contingent liabilities are a potential obligation that may arise depending on the outcome of an uncertain future event.


Types of non-current liabilities


Types of non-current liabilities include loans from a bank with interest rates, the business can issue bonds, mortgages, deferred income tax, etc. Bonds are similar to loans but the key difference is that the money is raised directly from the public. You will still be charged for interest, but can be cheaper than a bank. Bonds are less flexible.


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