Assets and Liabilities

The assets and liabilities section of the balance sheet are typically split in two, 0:00 current and non-current. 0:05 Sometimes, these are referred to as short term and 0:07 long term, instead of current and non-current. 0:10 I actually regularly see current and long term use together. 0:14 So, what does this mean? 0:18 When we see current assets and long-term assets or 0:20 current liabilities and long-term liabilities, what does that mean? 0:24 Well, current in accounting means something happening within the next year, 0:27 so current assets are assets that are expected to be 0:32 converted into cash within the next year. 0:35 In the current assets section of a balance sheet, you'll typically see things like 0:39 cash and cash equivalents, accounts receivable, and inventory. 0:43 There are other line items that may show up in this section, 0:48 of course, depending on the business. 0:51 But those seem to be the most common, and you will always find cash and 0:54 cash equivalents. 0:58 What are cash equivalents? 1:00 They are things like money market funds or T-bills or 1:02 other things that can be turned into cash in a very short period of time. 1:06 Current liabilities are, you guessed it, liabilities that will be redeemed, or 1:11 become due, or are owed within the next year. 1:16 The most common line items I see in this section are accounts payable, 1:20 short-term borrowings, and the current portion of long-term borrowings. 1:24 The current liabilities and 1:29 current assets of a business are often referred to as working capital. 1:30 That's because the line items in these sections are essentially funds 1:36 that are tied up or occupied by the operations of your business. 1:41 Working capital is another topic that could command its own course. 1:46 But let's get back to the basics of financial statements. 1:51 So if current means something that will occur or 1:54 happen within the next year, then long-term is everything other than that. 1:57 The items I see most often in the long-term sections of the balance sheet 2:03 are fixed assets, goodwill, and long-term debt. 2:07 We've already touched on what goodwill is. 2:11 We'll cover fixed assets in the next video, but 2:14 let's discuss long term debt here briefly. 2:17 For a variety of reasons, businesses will often borrow money from investors or 2:20 banks. 2:25 If the debt is something that a business will pay off over many years, 2:27 then any portion of that debt which isn't due within the next year will be 2:31 shown as a line item in the long-term liabilities section of the balance sheet. 2:36 In the next video, 2:42 we're gonna spend a little more time talking about fixed assets. 2:43