Understanding Business Assets and Accounting Information
The Accounting Treatment of Information
Accounting is the economic science that studies business assets, the rules, and the scientific basis upon which the registration of a company’s financial information is based. This is done both aesthetically and dynamically. The importance of accounting information lies in its ability to generate and supply data to various users, and in its quality as a reflection of the company’s situation. The aim is to provide financial information at different levels and to different types of business users:
- Managers: so they have enough information to use in decision-making and planning future actions.
- Owners: so they can verify that their interests are well protected.
- Workers: because the continuity of their jobs depends on the company’s results.
- Creditors: to enable them to know if the company is solvent and has sufficient collateral.
Business Assets
The set of assets, rights, and obligations that a firm has, properly valued in relation to the purpose for which they are intended. An asset is anything that can be appreciated and valued by the people it serves. Rights are claims that customers have to pay to the company, and obligations are the debts that companies have to pay suppliers.
The difference between the assets and rights held by the company and what it owes constitutes the wealth of the company. This difference is called net worth.
- The asset reflects the economic structure of the company.
- The liability reflects the company’s financial structure.
- Non-current assets (long term) > 1 year.
- Current assets (short term) < 1 year.
Asset Classes
They represent homogeneous heritage elements, serving as the basic criterion used for asset management. The criterion used is that assets are classified as available or by liquidity, and liability items as they fall due. The assets can be classified into:
- Non-current assets: formed by those elements of the heritage associated with the company for more than one fiscal year.
- Fixed Assets: composed of elements that enable productive activity. The assets become liquid through depreciation, the investment the company makes in assets to carry out its activities. This includes tangible assets, intangible assets, and depreciation of fixed assets.
- Long-term financial investments: consists of any investment in long-term financial assets, or equity securities, made with the intention of staying long-term, not for short-term speculation.
- Real Estate Investments: consists of those investments in real property not involved in the activities of the company.
- Current Assets: consisting of those elements that are in constant rotation, consists of:
- Inventory: composed of materials that are used in developing the product; these goods have to undergo a transformation or a sale to become liquid after a certain term.
- Receivables: represents claims and rights for the company for operations that are already accomplished and that will enable it to receive cash within a relatively short time.
- Cash: assets with immediate availability.
- Net Worth: represents the company’s resources that are intended for self-financing and those that are external but not to be returned.
- Non-Current Liabilities: formed by those sources of resources that must be repaid over a period exceeding the duration of a fiscal year. The estate constitutes long-term liabilities.
- Current Liabilities: consisting of those debts that the company should return within the fiscal year.
- Short-term debt: consists of debts the company has and has to repay in the short term.