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Provision Business Services LLC

A Professional Bookkeeping Firm

Located in Albuquerque, Serving all of New Mexico

505-269-3783

Assets are things that have current or future economic value.
Cash and money in depository bank accounts (checking, savings, CD’s) are your most liquid assets.

Accounts receivable (A/R) are also assets.  Billing a customer and giving them terms to pay like net 30 days creates an account receivable.  That customer owes you money.  This account receivable has future economic value.  These assets are still fairly liquid in that you expect to receive payments within a short period of time.

“Other current assets” is another category of assets.  You’ll see this in the type of accounts you can choose if you are a Quick Books user.  These are assets that you expect to convert to cash within a year.  Examples of this might be an employee advance.  You pay an employee ahead of time for work not yet performed, and expect to receive reimbursement from the employee.  Another example is if you pre-pay for things like insurance.  You may get a bill for an annual insurance premium and pay it all at the start of the coverage period.  That becomes an asset to your business.  You get future economic value for it during the course of the coverage period.

Inventory is an asset that you specifically buy for retail sale.  All of the items on the shelves at Walmart are inventory on Walmart’s books.  Inventory does not include items that you buy, use, and then sell.  For example, a construction company buys a bulldozer and uses it for construction projects.  Eventually, the company decides to sell the bulldozer because it doesn’t need it anymore.  The bulldozer is not inventory in this instance.  However, if your business is a retail outlet for selling bulldozers (you buy and sell bulldozers as your primary business), then a bulldozer purchase would be inventory.  Inventory is less liquid than the previous assets discussed.  You expect to sell it, but it might take a while to do so.

Fixed assets are the least liquid type of assets.  These are items you buy for use in your business.  Examples are buildings, office equipment, furniture, computers, and software.  In the example above, the bulldozer purchased for use by the construction company in their regular work is a fixed asset.