Assets and Liabilities

What are Assets and Liabilities?

Managers must be familiar and comfortable with understanding and applying financial concepts. Two very important financial concepts include Assets and Liabilities.

Current Liabilities

Current liabilities are defined as; “A current liability is an obligation that is payable within one year. The cluster of liabilities comprising current liabilities is closely watched, for a business must have sufficient liquidity to ensure that they can be paid off when due” (Accounting Tools, 2016). These are small payments that need to be paid back sooner than bigger loans. The current liabilities for Pizza Piazza’s are the short term loans of $1,500 credit card balance and $350 vendor balance.

Long-term Liabilities

Long-term liabilities are defined as; “Long-term liabilities are those obligations of a business that are not due for payment within the next twelve months” (Accounting Tools2, 2016). These are debts that are bigger in amount that would take longer than a year to pay back. The long-term liabilities for Pizza Piazza’s is the long term bank loan of $50,000.

Current Assets

Current assets are defined as; “A current asset is an item on an entity’s balance sheet that is either cash, a cash equivalent, or which can be converted into cash within one year” (Accounting Tools3, 2016). The current assets for Pizza Piazza’s are the insurance and community maintenance fees.

Fixed Assets

Fixed assets are defined as; “A fixed asset is an item with a useful life greater than one reporting period, and which exceeds an entity’s minimum capitalization limit. A fixed asset is not purchased with the intent of immediate resale, but rather for productive use within the entity” (Accounting Tools4, 2016). The fixed assets for Pizza Piazza’s are the business leases the restaurant, the kitchen equipment, and the 3 vehicles.

References:

Accounting Tools. (2016). Current Liabilities. Retrieved on May 13, 2016, from http://www.accountingtools.com/current-liability

Accounting Tools2. (2016). Long-term Liabilities. Retrieved on May 13, 2016, from http://www.accountingtools.com/long-term-liabilities

Accounting Tools3. (2016). Current Assets. Retrieved on May 13, 2016, from http://www.accountingtools.com/definition-current-asset

Accounting Tools4. (2016). Fixed Assets. Retrieved on May 13, 2016, from http://www.accountingtools.com/definition-fixed-asset