The assets and liabilities section of the balance sheet are typically split in two,

current and non-current.

Sometimes, these are referred to as short term and

long term, instead of current and non-current.

I actually regularly see current and long term use together.

So, what does this mean?

When we see current assets and long-term assets or

current liabilities and long-term liabilities, what does that mean?

Well, current in accounting means something happening within the next year,

so current assets are assets that are expected to be

converted into cash within the next year.

In the current assets section of a balance sheet, you'll typically see things like

cash and cash equivalents, accounts receivable, and inventory.

There are other line items that may show up in this section,

of course, depending on the business.

But those seem to be the most common, and you will always find cash and

cash equivalents.

What are cash equivalents?

They are things like money market funds or T-bills or

other things that can be turned into cash in a very short period of time.

Current liabilities are, you guessed it, liabilities that will be redeemed, or

become due, or are owed within the next year.

The most common line items I see in this section are accounts payable,

short-term borrowings, and the current portion of long-term borrowings.

The current liabilities and

current assets of a business are often referred to as working capital.

That's because the line items in these sections are essentially funds

that are tied up or occupied by the operations of your business.

Working capital is another topic that could command its own course.

But let's get back to the basics of financial statements.

So if current means something that will occur or

happen within the next year, then long-term is everything other than that.

The items I see most often in the long-term sections of the balance sheet

are fixed assets, goodwill, and long-term debt.

We've already touched on what goodwill is.

We'll cover fixed assets in the next video, but

let's discuss long term debt here briefly.

For a variety of reasons, businesses will often borrow money from investors or

banks.

If the debt is something that a business will pay off over many years,

then any portion of that debt which isn't due within the next year will be

shown as a line item in the long-term liabilities section of the balance sheet.

In the next video,

we're gonna spend a little more time talking about fixed assets.