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