Balance Sheet: Current Assets, Long-Term Assets, Total Assets
So let’s take a look at the assets section of the balance sheet. The assets section is commonly divided into two pieces:
- Current assets
- Long-term assets
Current assets are assets that can be turned into cash within a year — in a short period of time — and they include cash, of course, accounts receivable (also called AR: this is the amount of money that your customers owe you) and then inventory.
Long-term assets include things like building and machinery.
Alright, so let’s put some numbers in so you can see how the assets section totals. Let’s say that we have a total of $1,000 in cash. Our customers owe us a total of $5,000 and we’ve got $10,000 worth of inventory sitting on our shelves. We would then, for current assets, subtotal this ($1,000 plus $5,000 plus $10,000 is equal to $16,000 worth of current assets).
Our building is worth $150,000 and I’ve got machinery in there worth another $25,000. I’m going to subtotal my long-term assets ($175,000). And then I’m going to subtotal and create my total assets ($191,000) and I got there by simply adding my $16,000 in current assets to my $175,000 in long-term assets. And then, of course, now I’m at the bottom of my financial statement and so I do a double-underline. My assets are $191,000.
Next up — we’ll do the liabilities and owner’s equity.