Distinguish Between Fixed Assets And Current Assets
Assets are the properties of a business. They usually add value to the business organization. Examples include capital assets such as land and building, equipment, plants and machineries, motor van, and non-capital assets such as inventories, cash, etc.
Distinguish Between Fixed Assets And Current Assets
Assets are what the business owns. So how do you distinguish between fixed and current assets?
When assets are classified based on their convertibility into cash, they are classified as either current assets or fixed assets.
1. Current Assets
These are assets that can be easily converted into cash and cash equivalents (typically within one accounting year). Current assets are also termed liquid assets and examples of such are:
- Cash
- Cash equivalents
- Short-term deposits
- Stock
- Marketable securities
- Office supplies
- Accounts receivable
- Bills receivable
2. Fixed Or Non-current Assets
The second type of asset is the non-current assets. Noncurrent assets are also called fixed assets. They are assets that cannot be easily and readily converted into cash and cash equivalents. Non-current assets are also termed fixed assets, long-term assets, or hard assets. Examples of non-current or fixed assets include:
- Land
- Building
- Machinery
- Equipment
- Patents
- Trademarks
Conclusion: Distinguish Between Fixed Assets And Current Assets
Current assets are assets that can be easily converted into cash within one year and cash equivalents. They are reported on the balance sheet at their current market value or the amount expected to be realized from their sale or use.
On the other hand, non-current or fixed assets are assets that cannot be easily and readily converted into cash and cash equivalents. They are recorded on the balance sheet at their net book value, which is their original cost, less any accumulated depreciation.
