Assets and Liabilities: Frequently Asked Questions

Understanding Financing Terms: Answers to FAQs That All Business Owners Need to Know


Frequently Asked Questions

  • What are current assets?
    • Cash: The most liquid asset, it includes cash on hand and deposits in banks.
    • Accounts Receivable: Amounts that customers owe the company for products or services sold on credit.
    • Inventory: This includes raw materials, work-in-process, and finished goods that a company holds.
    • Short-term Investments: Also known as marketable securities like treasuries. These are investments that a company plans to convert into cash within a year.
    • Prepaid Expenses: These are payments made in advance for services or goods to be received in the future.
  • What are Current Liabilities?
    • Accounts Payable: Amounts the company owes to suppliers for goods or services purchased on credit.
    • Short-term Debt: Loans or other financial obligations that need to be repaid within a year.
    • Accrued Liabilities: Expenses that have been incurred but not yet paid. This could include wages, taxes, and other services that have been used but have not yet been billed.
    • Unearned Revenue: Payments received in advance for products or services that will be delivered in the future.
    • Current Portion of Long-Term Debt: The portion of long-term debts that are due within the next 12 months.

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