Wasn't it fun learning about Assets = Capital + Liability last week?
As mentioned in the previous article, the basic interpretation of the balance sheet is [A=C+l]. Let us explore the terms included in the equation elaborately.
What are ASSETS?
Technically, Assets are something which can be owned by a company to create some economic resource. Assets are classified into two types.
a. CURRENT ASSETS
These are the assets which are expected to be converted into a cash within a year.
b. FIXED ASSETS
These are the assets which are bought for long term benefits and cannot be converted into cash immediately.
Consider a Hospital business to understand about the types of assets.
Let us brainstorm about, what are the things(assets) that you might require to run a hospital.
You need a piece of land, a building constructed on that land, ancillary services like diagnostics which includes various laboratory tests like blood test, radiology and microbiology needs test tubes for blood samples, syringes, cotton, chemicals and much more imaging requires equipment like MRI (Magnetic Resonance Image), ultra-scan, X-ray machines, X-ray films.
The hospital also needs therapeutic services like Neurology, Physiotherapy and necessary equipment for them, to maintain cleanliness in a hospital we need soap liquids, broomsticks etc.
Now we have a brief idea about the essential commodities of a hospital, let us classify them into current assets and fixed assets.
Current assets:
Test tubes required for various tests, syringes, cotton, chemicals, X-ray films soap liquids, broomsticks are said to be current assets
These assets are recurring in nature and they are taken on the timely basis.
For example you buy a ton of cotton for a month or two but you will not buy it for a longer period of time, most likely for about ten years. You will buy cotton whenever it is necessary. It is same with Syringes, soap liquids and broomsticks.
Fixed Assets:
Land, buildings, equipments like MRI, X-ray machine, ultra- scan and physiotherapy are said to be fixed assets.
They are non-recurring in nature and are fixed. They are not used on the timely basis. Their use to the organization is almost all the time. Indeed, a hospital makes its profits out of these types of equipment.
For example, An X-ray machine which is bought is fixed to one corner in the hospital. The machine will not be replaced in a month or two. The purpose of the machine is long term and it is not replaced until it is completely damaged. The use of an asset which is long term is said to be FIXED ASSET.
The X-ray film used in an X-ray machine is a CURRENT ASSET and the machine is FIXED ASSET
This is all about the assets which are mentioned in a balance sheet. I hope you have enjoyed reading about the asset classification and I also hope this might have helped you to some extent.
The LIABILITIES classification and CAPITAL will be explained in the next post.
Until then,
Have a great time 😃😃😃😃😃
Sneha Polapragada.
As mentioned in the previous article, the basic interpretation of the balance sheet is [A=C+l]. Let us explore the terms included in the equation elaborately.
What are ASSETS?
Technically, Assets are something which can be owned by a company to create some economic resource. Assets are classified into two types.
a. CURRENT ASSETS
These are the assets which are expected to be converted into a cash within a year.
b. FIXED ASSETS
These are the assets which are bought for long term benefits and cannot be converted into cash immediately.
Consider a Hospital business to understand about the types of assets.
Let us brainstorm about, what are the things(assets) that you might require to run a hospital.
You need a piece of land, a building constructed on that land, ancillary services like diagnostics which includes various laboratory tests like blood test, radiology and microbiology needs test tubes for blood samples, syringes, cotton, chemicals and much more imaging requires equipment like MRI (Magnetic Resonance Image), ultra-scan, X-ray machines, X-ray films.
The hospital also needs therapeutic services like Neurology, Physiotherapy and necessary equipment for them, to maintain cleanliness in a hospital we need soap liquids, broomsticks etc.
Now we have a brief idea about the essential commodities of a hospital, let us classify them into current assets and fixed assets.
Current assets:
Test tubes required for various tests, syringes, cotton, chemicals, X-ray films soap liquids, broomsticks are said to be current assets
These assets are recurring in nature and they are taken on the timely basis.
For example you buy a ton of cotton for a month or two but you will not buy it for a longer period of time, most likely for about ten years. You will buy cotton whenever it is necessary. It is same with Syringes, soap liquids and broomsticks.
Fixed Assets:
Land, buildings, equipments like MRI, X-ray machine, ultra- scan and physiotherapy are said to be fixed assets.
For example, An X-ray machine which is bought is fixed to one corner in the hospital. The machine will not be replaced in a month or two. The purpose of the machine is long term and it is not replaced until it is completely damaged. The use of an asset which is long term is said to be FIXED ASSET.
The X-ray film used in an X-ray machine is a CURRENT ASSET and the machine is FIXED ASSET
This is all about the assets which are mentioned in a balance sheet. I hope you have enjoyed reading about the asset classification and I also hope this might have helped you to some extent.
The LIABILITIES classification and CAPITAL will be explained in the next post.
Until then,
Have a great time 😃😃😃😃😃
Sneha Polapragada.
