Assets - valuable resources of the company, which are divided into short-term and long-term. Short-term assets include money and other assets that can be transferred into them in the near future or will be used during the year.
Criteria for classification as short-term assets
Short-term assets can be easily converted into cash or used to pay off short-term liabilities throughout the year. Examples include cash, inventory, invoices for goods and services, and other liquid assets. Short-term assets are essential for the day-to-day operations of the company, they ensure the continuous execution of business tasks.
An asset can be recognized as short-term only if any of the following criteria is met:
- it must be used during one operating cycle of the company (usually a year);
- the asset will be sold within a year after the reporting date;
- it serves for the purpose of sale;
- an asset is money or its equivalents.
Other assets are long-term. The difference between long-term assets is that they involve investments for a longer period and cannot be converted into cash. Examples include land plots, real estate, investment in equipment. The cost of long-term assets is usually allocated to the number of years over which it will be used.
Classification and types of short-term assets
Traditionally, the following types of short-term assets are distinguished:
- working capital (in some sources they are referred not to short-term assets, but to reserves);
- money and their equivalents;
- receivables.
Also short-term assets include short-term financial investments and tax assets.
Working capital is divided into two parts. Firstly, these are objects of labor (materials, raw materials, fuel, etc.), which are completely consumed in the course of production and transfer the value to the finished product. These include fattening animals, costs in work in progress. Secondly, these are finished goods and goods for resale.
Money is the most highly liquid asset. Monetary assets include account balances, cash, coins, currency, etc. Cash equivalents include short-term highly liquid investments with a maturity of no more than three months.
According to the degree of liquidity or the ability to be sold at a market price, highly liquid and low-liquid assets are also distinguished.
Accounts receivable is the aggregate amount of money that is owed to the company by other companies that owe them. It arises if the goods are sold, and the debt has not been paid off. Refers to short-term, if it has a maturity of up to a year.
