Agribusiness Library LESSON L060086: ASSETS AND LIABILITIES

Objectives 1. Define current assets and identify examples of current assets. 2. Define non-current (or long-term) assets and identify examples of non-current assets. 3. Define current liabilities and identify examples of current liabilities. 4. Define non-current (long-term) liabilities and identify examples of non-current liabilities.

Terms Accounts payable Accounts receivable Assets Buildings Capital assets Cash Current assets Current liabilities Interest on liabilities Land

Terms Liability Long-term leases Machinery Non-current (or long-term) assets Non-current (or long-term) liabilities Operating loans Pension funds Pre-paid expenses Principal balances on loan

Terms Principal payments on non-current liabilities Rent payments Stocks Taxes Wages

 Assets are items that an individual or business owns that can be listed on a financial statement.  Current assets are items that an individual or business owns that can be sold to generate cash quickly.  Examples of current assets include:  A. Cash —assets in the form of cash, checking account, or savings account values.  Estimated cash value can also be applied to stored grain, market livestock, and other agriculture products, such as hay or straw.

 B. Stocks —shares of capital that an individual or business can own and resell.  Stocks increase and decrease in value due to the fluctuation of the market and economy.  C. Accounts receivable —income an individual or business is expecting to receive for products or services.  D. Pre-paid expenses —business expenses that have been paid for that have not yet been used, such as fertilizer, seed, and chemical expenses.

 Non-current (or long-term) assets are products and inventory an individual or business owns that will be used for more than one calendar year.  Examples of non-current (or long-term) assets are:  A. Land —any acreage area owned by an individual or business.  B. Buildings —permanent structures that are owned by an individual or business.  Examples of buildings include sheds, grain bins, garages, pole barns, or any other permanent structure.

 C. Machinery —engine-powered equipment that can be used for business or personal use.  Examples of machinery include trucks, tractors, sprayers, ATVs, lawn mowers, irrigation equipment, or any other types of equipment.  D. Capital assets —include any personal assets that are used for business purposes that will last for more than one year.  This may include equipment or breeding livestock.  E. Pension funds or other long-term investments— money deposited with a financial institution to create a retirement fund.  Often, a business will automatically deduct a certain portion of each employee’s paycheck to deposit into a pension fund.

 Liability refers to money owed for a product or service.  Current liabilities are items that must be paid within the next year.  Examples of current liabilities are:  A. Accounts payable —bills that are owed to businesses or individuals within the current operating year.  Examples may include seed, chemical, feed, or fertilizer bills.

 B. Operating loans —money that is borrowed in order to cover immediate expenses necessary for the business to function.  C. Taxes —money owed to the government.  A percentage of each dollar of income is paid to the government in the form of taxes.  D. Rent payments —money owed to owners of property in exchange for the use of their land, buildings, pasture, or other property or structures.

 E. Interest on liabilities —money owed to financial institutions in exchange for money borrowed.  F. Principal payments on non-current liabilities —the initial payment for items that are purchased within the current year.  The value of the capital item will be classified as a non- current asset, whereas the remaining value owed on the item is a non-current liability.  G. Wages —payments made to employees in exchange for their service.

 Non-current (or long-term) liabilities refers to money owed on a product, service, or inventory item.  Examples of non-current (or long-term) liabilities include:  A. Long-term leases —agreements made with property owners where money is owed to the owner in exchange for the use of the property.  B. Principal balances on loans (for land, buildings, machinery, or other capital items)—the total amount of money left over on a loan that must be paid before transferring ownership.

REVIEW What are current assets and what are some examples of current assets? What are non-current (or long-term) assets and what are some examples of non-current assets?

REVIEW What are current liabilities and what are some examples of current liabilities? What are non-current (or long-term) liabilities and what are some examples of non-current liabilities?