ASSETS

An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit.

Assets are listed in order of their liquidity—the order in which assets are likely to be converted to cash in a balance sheet.

The first asset usually in a balance sheet is cash. The amount of cash in naira represents the balances on deposit at the company’s banks. It also includes excess cash, beyond the needs of day-to-day operations, that has been invested on a very short-term, very secure basis.

Due from customers is also a type of asset. It is often referred to as accounts receivable or trade receivables, it represents the amounts owed to the company by customers who purchased merchandise but who had not, paid for those purchases as at the time the financial statement was prepared. A large portion of all commercial sales are credit sales where the buyer agrees to pay for the purchases within 30, 60, or 90 days. Under GAAP, using accrual accounting, the accounts receivable due from customers are recognized as assets. Accounts receivable are recorded as the amount of cash the company expects to receive as a result of those charge sales. It is adjusted down by what they do not expect to collect.

Another asset type is Inventory. This is the aggregate cost of the raw materials, work-in-process, and finished goods owned by the company. Under GAAP, inventory includes all the inventory the company owns— that is, all the inventory for which it has paid or promised to pay. Note that inventory is recorded at its cost, that is, at the price the company paid (or promised to pay) to its suppliers plus all the costs incurred in producing its finished products—including the costs of products in production. It may be adjusted down by the amount of inventory judged to be unusable or unsalable. The difference between the cost of the inventory and its expected sales price is an opportunity for profit for the company, but under GAAP, it remains an unrecognized opportunity until the products are actually sold.

Investments typically represents the company’s partial ownership of other firms. A company may have purchased some shares in other firms to help build relationships with important suppliers and customers.

Plant and equipment is the unallocated cost of the land, buildings, equipment, and construction in progress. These costs are allocated to products during production or are expensed (depreciated) over time as these assets are used up. Typically, land continues to be carried at cost and does not depreciate. The others are shown net of costs already expensed. For example, company A originally spent $32,473 million on the plant and equipment it currently owns; $16,176 million of that cost has already been expensed, leaving a “book value” of $16,297. Of course, unless all these assets were to be sold, no one knows how much they might actually be “worth.”

Goodwill is the premium over the value of assets and liabilities paid when company A acquired other companies. Such premiums are common when the projected future earnings and cash flows of the acquired firm exceed the net book value of that firm.

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