by Costas Chryanthou

Created on: January 24, 2009   Last Updated: April 09, 2009

Financial assets are the cash at hand and cash at the bank. Other financial assets include stock which are the value of unsold stock. These are usually valued at either the lower of the net realisable value or the cost price which ever is lower. The stock value is almost cash though it has not yet been converted to cash through sales turnover. Other financial assets of a business include prepayments on a number of items which can include electricity, water, rent, telephone bills, as well as deferred taxation. These current assets appear in the companies balance sheet.

Financial assets are included in the balance sheet to show how well the company is managing its cash as well as to show any trends in the financial figures in the statements. The financial assets are an indicator of how well the company is doing. The reason for including financial assets in the balance sheet as current, is to say to the auditors and people viewing the companies accounts that the figures are included are current assets which means that the figures are collectible or due within 1 year of the figures being shown. Other longer term financial assets would include longer term capital such as loans and mortgages. Fixed assets are not included in the financial assets or liabilities as these are investments in machinery and plant, for which the company uses to make its products and deliver its services.

Liabilities by comparison can include current liabilities such as the use of an overdraft, creditor amounts outstanding that are payable within 1 year, also the company may have amounts outstanding after the balance sheet date which have to be paid at some time in the near future. The company also may have a number of financial commitments which can be included in the current liability total provided they are due within 12 months, or they can be included in the longer term liabilities in which they would be longer term debt finance capital.

The reasons for separating these classes of assets in the accounts is to enable investors to make ratio analysis figures and so that a year on year comparison can be shown to investors and all other stakeholder in the company.

In summary the financial assets are cash amounts that are due to the company, or cash held in the companies treasury, whereas the liabilities are the amounts of cash that the company themselves owe to creditors and other third party suppliers. Either way the record keeping of the company has to be accurate, organised and up to date.

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