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Financial Management: Assets, Liabilities & Capital

Defining Business Assets

What the Business Owns

Assets are things a business owns that have value and can be used to generate revenue or provide economic benefit. Assets are categorized as current or non-current based on how quickly they can be converted into cash or used up.

Asset Categories & Liquidity

Assets are fundamental to operations and are classified based on their intended use duration.

CA

Current Assets

These are assets expected to be used or converted into cash within one year or one business cycle, whichever is longer. Current assets provide liquidity to the business, helping it meet short-term expenses.
Examples: Cash, Inventory, Trade receivables, Prepayments.
NCA

Non-Current Assets

These are long-term assets used by the business for more than one year in its operations. They are not primarily held for resale but for production or administrative purposes.
Examples: Property, plant, and equipment (PP&E), Intangible assets, Long-term investments.

Liability Structure: Debts & Obligations

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Current Liabilities Debts or obligations due within one year.
Examples include: Trade payables, Accrued expenses, Short-term loans or overdrafts. Current liabilities require immediate attention to avoid cash flow problems.
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Non-Current Liabilities Debts payable over a longer period than one year.
Examples include: Long-term loans, Mortgage. These liabilities generally finance non-current assets or larger projects.

Defining Business Capital Sources

Capital represents the funds invested in the business by owners or generated internally.

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Share Capital

Money raised through the issue of shares to shareholders. Share capital doesn’t have to be repaid but dilutes control.
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Retained Profit

Profits that a business has earned and kept rather than distributed as dividends. These are reinvested in the company for growth or debt payment.

Cash Flow vs. Economic Success

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What is the fundamental difference between Cash and Profit?
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Profit is the surplus after all revenues and expenses (including non-cash ones like depreciation) are deducted. Cash refers to the actual money available at a given point in time.

A business can show a profit but have no cash if, for example, sales are made on credit and customers haven't paid yet.
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Types of Business Assets Deck
Term
Assets

What are assets in a business context?

Answer
Definition

Things a business owns that have value and can generate revenue or economic benefit.

Term
Asset Categories

How are assets categorized?

Answer
Categories

Into current assets and non-current assets.

Term
Current Assets

What defines current assets?

Answer
Definition

Assets expected to be converted into cash or used up within one year or one business cycle.

Term
Examples of Current Assets

Name four examples of current assets.

Answer
Examples

Cash, Inventory, Trade receivables, Prepayments.

Term
Purpose of Current Assets

What is the primary purpose of current assets?

Answer
Purpose

To provide liquidity to meet short-term expenses.

Term
Non-Current Assets

What defines non-current assets?

Answer
Definition

Assets used by the business for more than one year, not held for resale.

Term
Examples of Non-Current Assets

Give three examples of non-current assets.

Answer
Examples

Property, Plant and Equipment (PP&E), Intangible assets, Long-term investments.

Term
Depreciation

How are non-current assets accounted for over time?

Answer
Accounting

They are depreciated to reflect wear and tear or obsolescence.

Term
Trade Receivables

What are trade receivables?

Answer
Definition

Money owed to the business by customers who purchased on credit.

Term
Intangible Assets

What are intangible assets?

Answer
Definition

Non-physical assets such as patents, trademarks, or goodwill.

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💼 Types of Business Assets Quiz

1. Which of the following is NOT a current asset?

Land is a non-current asset as it is held for long-term use, not for conversion within a year.

2. What is the main purpose of current assets?

Current assets are quickly converted into cash to cover short-term obligations.

3. Which of the following is considered an intangible asset?

Patents are non-physical, long-term assets that provide legal protection and economic benefits.

4. Non-current assets are:

Non-current assets are held for more than one year and their value is reduced through depreciation.

5. Trade receivables represent:

Trade receivables are amounts customers owe a business for sales made on credit.

📊 Results

  • Notes and Quiz
  • Business
  • A Level
  • Accounting & Finance
  • OCR