Assets can be classified as current assets and fixed assets:
Current assets: These are assets which change periodically as they are used to produce goods or provide services. They also change as stock items are sold.
The cash held by the firm’s bank changes constantly as goods are bought, staff paid, payment is received from customers and other debtors, loans are repaid, dividends are paid to shareholders and taxes are paid.Debtors are obligations owed to the firm from the sales made on credit terms are an obligation of the buyer of the product or service. The company has a claim on that obligation. Such claim is a current asset owned by the firm until the buyer or debtor pays the invoice and cancels the debt.
Prepayments for rent, insurance, etc. are advance funds owned by the firm but held by the beneficiary, be it the owner of a rented property, an insurance company to whom an annual premium has been paid, or contractors and suppliers who receive an advance payment to help them mobilise resources to deliver goods and services.
Fixed assets: These are assets such as equipment, land, buildings or cars that remain in the firm for some time usually for more than one year.
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