Assets

In the Assets section, each type of asset is listed. Assets are arranged in order of liquidity--how quickly they can be turned into cash. The goal of the Assets section is to determine the total worth of all the company's assets.

Current assets include cash, accounts receivable, securities, inventory, prepaid expenses, and anything else that can be converted into cash within one year or during the normal course of business.

• Cash includes cash on hand, in the bank, and in petty cash.

• Accounts receivable are the amount of money that customers presently owe the company. Because every company will have some bad debts, the amount of bad debts known and expected should be deducted from the accounts receivable as "reserve for doubtful accounts. "The net receivables are calculated as:

Accounts Receivable - Reserve For Doubtful Accounts = Net Receivables.

• Inventory consists of goods ready to be sold, raw materials, and partially completed goods that will be sold. The balance sheet should reflect the value of inventory as the cost to replace it.

• Prepaid expenses are a current asset because they represent goods or services already paid for but not yet fully used or consumed. For example, prepaid insurance premiums and prepaid rent are prepaid expanses.

Fixed assets are also called "long term" assets. Fixed assets are assets that produce revenue. They can include such items as office furniture, vehicles, real property, building improvements, and factory equipment. They are considered "long term" because they are not intended to be sold. The value of a fixed asset might include installation, shipping, and expenses for preparing the asset for service. The depreciation on fixed assets should be deducted from the asset values to prevent overvaluation. Net fixed asset value is calculated as:

Cost - Depreciation Taken To Date = Net Book Fixed Asset Value.

"Other assets" are generally fixed assets that are intangible. These assets may include patents, royalty arrangements, copyrights, goodwill, and life insurance on officers and key employees. Often, intangibles are not included on a balance sheet because of the difficulty of valuing them. However, in some cases where intangible values are significant, they are broken down by type just as was done when listing inventory.

All assets are totaled in the line item "Total Assets. "