Do you know how you should categorise the assets that your company owns and what are the characteristics of each type of them? When you look at the balance sheet that the accountants from an accounting firm in Johor Bahru have prepared for you, you will see that they have divided the assets into two different groups, which are current assets and non-current assets.
Current assets are the assets that your company expects to sell, use or consume within the normal course of business within a year. Contrarily, non-current assets, are the assets that the long-term assets that your company will capitalise (Also see How to Differentiate Working Capital and Fixed Capital?) rather than expensing them, and the full values of these assets will not realise in that accounting year. Quick assets, on the other hand, are the assets that have high liquidity, and business owners will be able to convert them into cash easily.
To calculate the amount of fixed assets that your company owns, you should take the current assets and minus inventories from it. The resulting amount will be the quick assets. If you want to convert the quick assets into cash, you may liquidate them in the market. You may use the amount of quick assets in the calculation of financial ratios so that you can analyse the financial performance of your company more easily. Some examples of quick assets include cash, bank balances, prepaid expenses, accounts receivables, short-term investments (Also see Capital Budgeting in Business Investments) and marketable securities.
Cash refers to the sum of money that you have kept in your company’s bank accounts. It also includes the money that you have deposited into the interest-bearing accounts such as recurring deposits (RD) and fixed deposit (FD). Prepaid expenses are the amounts that you have paid, yet you have not received the goods or services. Before you include any prepaid expenses as the quick assets, you need to make sure that your company will consume those goods or services in a year.
Accounts receivables are also your quick assets as your company is going to receive the payments from your customers for the goods or services that you have provided to them. Thus, you should include the accounts receivables as your assets (Also see What You Need to Know About Deferred Asset) in the books of accounts. Similar to the prepaid expenses, you should only include the amounts of accounts receivable that you will collect in a year as your quick assets.
Besides, you should also categorise short-term investments as your quick assets as they are the investments that are expected to be converted into cash in one year. Generally, they include bonds, stocks, as well as other marketable securities that you can liquidate quickly and easily when necessary.
The calculation of quick assets does not take inventories (Also see Tips For Effective Sales Inventory Management) into account as business owners may need more time to sell them and convert them into cash. As we are unable to predict the time the inventories will change into cash; we do not consider them in the calculation of quick assets.