Other Current Assets

Other Current Assets consist of prepaid expenses and other miscellaneous and current assets.

Fixed Assets

Fixed assets represent the use of cash to purchase physical assets whose life exceeds one year. They include assets such as:

• Land
• Building
• Machinery and Equipment
• Furniture and Fixtures
• Leasehold Improvements

Intangibles

Intangibles represent the use of cash to purchase assets with an undetermined life which may never mature into cash. For most analysis purposes, intangibles are ignored as assets and are deducted from net worth because their value is difficult to determine. Intangibles consist of assets such as:

• Research and Development
• Patents
• Market Research
• Goodwill
• Organizational Expense

Other assets

Other assets consist of miscellaneous accounts such as deposits and long-term notes receivable from third parties. They are turned into cash when the asset is sold or when the note is repaid. Total Assets represent the sum of all the assets owned by or due to the business.

LIABILITIES AND NET WORTH

Liabilities and Net Worth are sources of cash listed in descending order from the most nervous creditors and soonest to mature obligations (current liabilities), to the least nervous and never due obligations (net worth). There are two sources of funds: lender-investor and owner-investor. Lender-investor consist of trade suppliers, employees, tax authorities and financial institutions. Owner-investor consists of stockholders and principals who loan cash to the business. Both lender-investor and owner-investors have invested cash or its equivalent into the company. The only difference between the investors is the maturity date of their obligations and the degree of their nervousness.

Current Liabilities

Current liabilities are those obligations that will mature and must be paid within 12 months. These are liabilities that can create a company's insolvency if cash is inadequate. A happy and satisfied set of current creditors is a healthy and important source of credit for short term uses of cash (inventory and receivables). An unhappy and dissatisfied set of current creditors can threaten the survival of the company. The best way to keep these creditors happy is to keep their obligations current.

Current liabilities consist of the following obligation accounts:

• Accounts Payable -- Trade (A/P)
• Accrued Expenses
• Notes Payable -- Bank (N/P Bank)
• Notes Payable -- Other (N/P Other)
• Current Portion of Long term Debt

Proper matching of sources and uses of funds requires that short term (current) liabilities must be used only to purchase short term assets (inventory and receivables).

Notes Payable

Notes payable are obligations in the form of promissory notes with short term maturity dates of less than 12 months. Often, they are demand notes (payable upon demand). Other times they have specific maturity dates (30, 60, 90, 180, 270, 360 days maturities are typical). The notes payable always include only the principal amount of the debt. Any interest owed is listed under accruals.

Accounts Payable

Accounts Payable are obligation due to trade suppliers who have provided inventory or goods and services used in operating the business. Suppliers generally offer terms (just like you do for your customers), since the supplier's competition offers payment term. Whenever possible you should take advantage of payment terms as this will help keep your costs down.