2 Assets and Liabilities

Current vs. Non-Current Accounts

We’re almost there! You have the broad classifications for the Statement of Financial Position! Within the broad categories of asset and liability, it is helpful to identify whether accounts are going to convert to cash during the year. Assets that will be converted into cash in the upcoming fiscal year are called current assetsCurrent Asset:
An economic benefit that meets the criteria of an asset and will be settled within one year or within the company’s accounting cycle, whichever is longer. Cash, A/R, inventory, and pre-paid expenses are current assets.. Examples of current assets include:

Accounts Receivable (A/R)Accounts Receivable:
A current asset account that tells financial statement users how much a company expects to receive from customers for past sales. Also known as credit sales.

are amounts owed by customers. a/r increases when a customer buys a product or service but doesn’t pay until later. Because cash will likely be collected within the year (typically within a month), it is classified as a current asset.

Inventory

is product available to be sold, like T-shirts or cars, will likely be sold within one year.

On the liability side, current liabilitiesCurrent Liability:
An obligation that meets the criteria of a liability and will be settled within one year. Credit card balances, A/P, and accrued liabilities are current liabilities. include:

Accounts Payable (A/P)Accounts Payable:
A current liability account that tells financial statement users how much a company is obligated to pay suppliers for past inventory purchases.

is amounts we owe to suppliers. a/p increases when we buy a product or service but don’t pay until later.

Sales Tax Payable (to the government):

GST and PST are collected from customers on behalf of the federal and provincial governments. The government will expect to be paid regularly (monthly, quarterly, or annually, depending on the amount of tax collected).

Employee Salaries Payables

are due within the year. Employees will expect to get paid shortly after submitting their timecard. Usually, employees are paid biweekly or monthly.

Current Accounts

As a general rule, if an account will be settled, usually in cash received or paid during the fiscal year, we classify the account as current.

Here’s a quick reference for current assets and liabilities. If you see these accounts, your instinct should be to classify as current:

• Cash
• Short-Term Investments
• Accounts Receivable
• Inventory
• Prepaid ExpensesPrepaid Expenses:
  A current asset representing costs paid in advance for products or services that a company has not used. Rent and insurance are often paid in advance, for example. Prepaid expenses are a deferral of expenses to a future period.

• Bank Overdraft (that is, a negative cash balance)
• Accounts Payable (A/P)
• Sales Tax Payable
• CPP Payable
• EI Payable
• Employee Income Taxes Payable
• Interest Payable
• Income Taxes Payable
• Current Portion of Long-Term DebtCurrent Portion of Long-Term Debt:
  The principal repayments of debt expected within one fiscal year. This re-categorization is a financial statement presentation issue and does not affect the balance of debt in the company’s trial balance.

Non-Current Accounts

Accounts that aren’t classified as current are non-current. Non-current assetsNon-Current Asset:
An economic resource that meets the criteria of an asset, and that will not be settled within one year. PPE are non-current assets. are used by the company over a long period of time to create value. Example assets include property, plant, and equipment (ppe)PPE:
Property, plant and equipment (PPE) are long-lived physical assets, such as land, buildings, furniture, and vehicles that a company uses to create value. including land, buildings, equipment, and furniture; investments that mature in more than one year; and intangible assets like patents and copyrights. Notice that all these assets are typically held for at least one year, and in many cases multiple years.

Non-current liabilitiesNon-Current Liability:
An obligation that meets the criteria of a liability, and that will not be settled within one year. Debt is a non-current asset, valued as the aggregate principal repayments expected to be paid on debt, and presented on the Statement of Financial Position net of the current portion of long-term debt. are amounts owed by the company that will not be paid within one year. Debt is a non-current liability. Sometimes you’ll see debt expressed as mortgage payable or bonds payable. When you see these accounts, you should immediately think non-current:

• Long-Term Investments
• Property, Plant, & Equipment:
  • Land
  • Building
  • Equipment
  • Furniture & Fixtures
  • Machinery
• Intangible Assets:
  • Goodwill
  • Patents
  • Copyright

• Mortgage Payable
• Bonds Payable
• Debt

One last thing about non-current assets: these assets are grouped. All ppe (land, buildings, and equipment) are grouped together and given a subtotal. Same with the other two categories—investments and intangible assets—they are grouped and totalled. Groupings aren’t necessary with non-current liabilities; they are just listed one-by-one. This makes sense because there aren’t as many non-current liability accounts as there are non-current asset accounts.