1 00:00:00,480 --> 00:00:05,278 The assets and liabilities section of the balance sheet are typically split in two, 2 00:00:05,278 --> 00:00:07,970 current and non-current. 3 00:00:07,970 --> 00:00:10,900 Sometimes, these are referred to as short term and 4 00:00:10,900 --> 00:00:14,370 long term, instead of current and non-current. 5 00:00:14,370 --> 00:00:18,620 I actually regularly see current and long term use together. 6 00:00:18,620 --> 00:00:20,940 So, what does this mean? 7 00:00:20,940 --> 00:00:24,070 When we see current assets and long-term assets or 8 00:00:24,070 --> 00:00:27,730 current liabilities and long-term liabilities, what does that mean? 9 00:00:27,730 --> 00:00:32,340 Well, current in accounting means something happening within the next year, 10 00:00:32,340 --> 00:00:35,540 so current assets are assets that are expected to be 11 00:00:35,540 --> 00:00:37,940 converted into cash within the next year. 12 00:00:39,290 --> 00:00:43,280 In the current assets section of a balance sheet, you'll typically see things like 13 00:00:43,280 --> 00:00:48,500 cash and cash equivalents, accounts receivable, and inventory. 14 00:00:48,500 --> 00:00:51,600 There are other line items that may show up in this section, 15 00:00:51,600 --> 00:00:54,250 of course, depending on the business. 16 00:00:54,250 --> 00:00:58,760 But those seem to be the most common, and you will always find cash and 17 00:00:58,760 --> 00:01:00,540 cash equivalents. 18 00:01:00,540 --> 00:01:02,480 What are cash equivalents? 19 00:01:02,480 --> 00:01:06,695 They are things like money market funds or T-bills or 20 00:01:06,695 --> 00:01:10,315 other things that can be turned into cash in a very short period of time. 21 00:01:11,675 --> 00:01:16,355 Current liabilities are, you guessed it, liabilities that will be redeemed, or 22 00:01:16,355 --> 00:01:20,325 become due, or are owed within the next year. 23 00:01:20,325 --> 00:01:24,110 The most common line items I see in this section are accounts payable, 24 00:01:24,110 --> 00:01:29,580 short-term borrowings, and the current portion of long-term borrowings. 25 00:01:29,580 --> 00:01:30,940 The current liabilities and 26 00:01:30,940 --> 00:01:35,610 current assets of a business are often referred to as working capital. 27 00:01:36,620 --> 00:01:41,090 That's because the line items in these sections are essentially funds 28 00:01:41,090 --> 00:01:45,620 that are tied up or occupied by the operations of your business. 29 00:01:46,670 --> 00:01:51,160 Working capital is another topic that could command its own course. 30 00:01:51,160 --> 00:01:54,900 But let's get back to the basics of financial statements. 31 00:01:54,900 --> 00:01:57,910 So if current means something that will occur or 32 00:01:57,910 --> 00:02:03,090 happen within the next year, then long-term is everything other than that. 33 00:02:03,090 --> 00:02:07,010 The items I see most often in the long-term sections of the balance sheet 34 00:02:07,010 --> 00:02:11,610 are fixed assets, goodwill, and long-term debt. 35 00:02:11,610 --> 00:02:14,130 We've already touched on what goodwill is. 36 00:02:14,130 --> 00:02:17,070 We'll cover fixed assets in the next video, but 37 00:02:17,070 --> 00:02:19,570 let's discuss long term debt here briefly. 38 00:02:20,630 --> 00:02:25,630 For a variety of reasons, businesses will often borrow money from investors or 39 00:02:25,630 --> 00:02:27,140 banks. 40 00:02:27,140 --> 00:02:31,440 If the debt is something that a business will pay off over many years, 41 00:02:31,440 --> 00:02:36,070 then any portion of that debt which isn't due within the next year will be 42 00:02:36,070 --> 00:02:40,790 shown as a line item in the long-term liabilities section of the balance sheet. 43 00:02:42,170 --> 00:02:43,120 In the next video, 44 00:02:43,120 --> 00:02:46,980 we're gonna spend a little more time talking about fixed assets.