ACC/400 ACCOUNTING FOR DECISION MAKING Week 1 individual assignment

1. Running head: Assets and Liquidity 1
Assets and Liquidity
Spencer Zubal
ACC/400
May 13, 2013
Alice Bergmann

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Assets and Liquidity
Every business organization must account for a variety of daily activities. Companies
need to account for assets and liabilities, as well as track cash flow. The representation of these
processes can be found on the balance sheet in a generalized way. It is a way for those who has
stake in the company, such as investors and employees, along with the public to see where a
company stands with its current and non-current assets. Both types of assets can be converted
into cash or cash equivalents. The length of time it takes for the process of liquidation to occur is
what sets them apart from each other. It is important for a company to keep track for the current
and non-current assets and for a company to know how fast they can be liquidated.
Assets are any item that can be converted to cash or cash equivalent. Current assets are
used to pay expenses and fund day to day activities. Current assets are short-term gains and are
identified in a variety of ways such as, cash, accounts receivables, pre-paid expenses, and market
securities. Current assets are easily turned into cash and done so within the accounting year.
Non-current assets on the other hand are long-term investments. Non-current assets are
capitalized over a long period of time and the fulfillment is not realized with in the accounting
year; but is allocated over the number of years of their usefulness. Types of non-current assets
are property, plant, equipment, stocks, and bonds. The length of time an asset can be converted
into cash is what separates current assets from non-current assets. Current assets has a quick
liquidation time, while non-current assets have long-term liquidation, or even not turned into
cash in the end of their usefulness.
Liquidation is the ability to turn an asset in to cash. The more liquid an asset is means the
quicker it can be turned into cash. The order of liquidity shows the assets listed on the balance
sheet in the order of how fast they can be turned into cash. The first to be listed is cash, followed

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by market securities, next is accounts receivables, then inventory, fixed assets, and the last is
goodwill. The order of liquidity is a simple way of listing assets in order of most liquid so the
balance sheet could be easily read.
Current and non-current assets represent the items that can be converted into cash or cash
equivalents. Listing them in order of liquidity is an easy way for those invested in the company
and even those outside the company to see how a company is allocating funds. Although the
length of time is different when converting to cash both is really important for a company to
have. Tracking the current and non-current assets will not only show how fast assets can be
liquidated it shows where the cash brought in is being allocated. A company wants to have
money spread out between long-term and short-tern assets.