Accounting really is nothing more than a language we use to define, classify and explain the company in all its fields, both in the day to day and in the long term, from a dynamic and static point of view.
And in that language there are many concepts that are often complicated not only to understand but also to explain. Two of these concepts are the Assets and Liabilities in the Balance Sheet, or really to be more exact three, the Assets, Liabilities and Net Equity.
The assets of the company
Literally, the PGC defines the assets of the company as the “assets, rights and other resources economically controlled by the company, resulting from past events, from which the company is expected to obtain benefits or economic returns in the future” , in line with the definition given by the International Accounting Standards (IASB).
Referring to the Asset as the assets and rights of the company or even as the destination of the company’s resources is not inappropriate to get an idea of the concept.
The Asset is divided into two large groups: Non-Current or Fixed and Current Assets.
The Non-Current Assets or Fixed Assets are those whose vocation is to remain in the company for more than one year, regardless of whether or not they directly intervene in the productive cycle of the company (in the preparation of the goods or services that involve the main activity of the company).
It is characterized by, in principle, having a lower liquidity, it is more complicated to sell it or we have no intention of doing so, to put it in a simple way. It includes the company’s property patents or computer software, machinery, real estate, investments in other companies (or group companies), rights to future tax deductions, or even sales, but with a commitment to collect more than one year.
The current assets is one consisting of assets and rights with greater liquidity. Either because they are acquired with the intention of selling and trading (securities portfolios with which it is negotiated, debt, etc.), they belong to the production cycle of the company (amounts pending collection by customers) or because they are active highly liquid financial (credit cards, deposits, checking accounts, the company’s cash …)
Liabilities and Net Equity.
If we resort again to the definition given by the PGC, the Liability is formed by “current obligations arising as a result of past events, for whose termination the company expects to release resources that may produce benefits or economic returns in the future. For these purposes, the provisions are understood to be included ”, and the Net Equity“ constitutes the residual part of the company’s assets, after deducting all of its liabilities. It includes the contributions made, either at the time of its constitution or in subsequent ones, by its partners or owners, that do not have the consideration of liabilities, as well as the accumulated results or other variations that affect it ”.
We will try to give a simpler explanation. First, indicate that the Liabilities, like the Assets, are divided into Current (the one linked to the company’s cycle) and Non-Current .
Well, we do not err too much if we say that both the Non-Current Liabilities and the Net Equity are formed by the obligations due to the obtaining of resources that will then be allocated to the acquisition of the Asset, that is to say the origin of the company’s resources .
In the case of Net Equity, we talk about the main core of the company’s own resources, the share capital contributed by the partners, the company’s reserves, the results of other years. They are practically untouchable resources of the company or the last in extreme situations.
In the case of Non-Current Liabilities , we talk about long-term debts whether they are financial (loans, mortgages …), non-commercial or with other companies (whether or not from our same company group) in which we incur as we have said before to to obtain the necessary asset for the company.
On the other hand, there is the Current Liabilities, represented by those obligations that arise in the normal cycle of the company, on the day to day of the activity, such as commercial debts with creditors for the purchase of supplies, short-term financial debts , payroll to workers, tax debts (taxes pending entry, withholding taxes, deferred tax fees …) or with social security, etc.
We hope this article will help you to clarify these concepts.