Business Assets - Essay Example

By Student’s Name       Course Name Professor’s Name University Name City Date Business Assets An asset in business determines its value. Business assets are financial resources used for the benefit of the business. Although Money or cash is an asset, assets can be liquidated to provide money for the business when the business is failing or closing. Assets can also be increased to expand the business. The company's asset base provides the basis and value for the company to enlist in the stock market to acquire financing for business expansion through sale of shares. According to Boldrin, Michelle, Lawrence, Christiano and Jonas (2000), assets are economic resources that provide the business with a stable financial source. Boldrin et al. (2000) also noted that assets can be tangible or intangible with time considered as a controlling factor in asset management and acquisition. Assets can also be solid equipment used in the business such as computers, desks and chairs or intangible assets such as patents or copyrights over products or services or internet domain or web pages. Assets vary for every type of business and are mainly divided into fixed and current assets. Fixed assets are the most common variable of a business entity since they are the visible assets. Fixed assets are the equipment, property or tools used in the business to produce goods for sale, to control the service on offer or to provide a basis for business operations. Fixed assets in a business are through use of analysis accounting. Fixed assets are on the cost of acquisition of the assets and the taxes and professional fees paid to acquire the asset. Fixed assets in a business either increase or decrease in value over a period giving an asset a residual value. The assets also properties of the business are tangible and are considered to be a last resort and not easily liquidated as compared to current assets. Fixed assets include land, office furniture, transportation equipment, machines and other machinery or tools used for business. According to Wang and Zhang (2008), assets never lose value but are always valuable at the end of their shelf life, hence the residual value. The asset's residual value is what a business will earn on disposing of assets that are unneeded. Current assets are business components that include money in the business, income from current conducted business, inventory or stocks available for sale, shares in the company, expenses that have been and assets that can liquidate to provide immediate capital. Boldrin et al. notes that current assets buffer the business from loss and can be sold to clear outstanding debts reducing the need to sell fixed assets. The importance of current assets in business operations are such that they provide funding for daily operations. These are products, either goods or services that are on a regular basis such as air tickets, petroleum products to currency trading. The current assets vary from cash at hand to cash in the bank; stock securities in short term investments and are easy to liquidate. Asset accounting dictates that current assets are depended upon by the business over a considerable period to provide operational funds for the business. Fixed and current assets inclusively determine the value and succeed of a business but they fundamentally differ. Current assets, offer flexibility and are easy to liquidate to provide money for the company whereas fixed assets are usually non-movable and solid assets that require an extended time to dispose of or liquidate. Airline industrIes provide examples of business entities with fixed and current assets. In the airline industry fixed assets include airplanes, property in the form of booking offices, booths and the administrative headquarters. Current assets include inventories, income termed as receivables, and derivative financial instruments such stock securities. Both the fixed and current assets in a business entity are important to the operations and value of the business. The current assets in a business help to keep it afloat. Operations, occur when products and services are sold to provide money for circulation funding of the business entity. Fixed assets are necessary for performing the business by offering a platform to conduct the business. Fixed assets also improve the efficiency of conducting the business by creating a layout, providing machinery helping to increase sales and attraction of customers to the business. Accounting Conventions Accounting conventions are the practical applications of accounting principles and are not legally binding to the business entity. The norms of accounting set by continuous practices in business over long periods. Prudence concept of accounting is the practice of accounting in business requiring the management not to overestimate the revenue of the business or to underestimate the expenses of the business. Prudence requires that all the financial transactions be accurately, and assets reviewed to note their value over particular periods. Going concern in accounting is the assumption of a business entity to predict the business’ financial future. Despite succession or failure of the business, going concern prevents liquidation of assets enabling the accountant justifiably to defer the recognition of a particular expense to a later time when the business entity can pay off the outstanding debts. According to Carcello, Joseph and Neal (2008), going concern is a fundamental assumption in business accounting on the basis of financial statement made by the accountant. Financial statements and predictions are on the assumption of the business being operational in the future. Going concern always assumes the business entity will become profitable and have ability to settle debts and obligations. Carcello et al. (2008), note that management determines whether assuming the success and operational future of the business and its current status of financial statements cause for going concern. For instance, the future The dual aspect concern requires all business transactions to be recorded either in a single or double entry where the process requires. Individual transactions are in individual entries and occur when a customer buys a good or service, and only revenues recorded leaving out the receipt notification of the sale. Double entry system follows the dual aspect concept of accounting in business where the ledger contains both credit and debit sides. The debit side records expense and asset increment, decrement in income and liabilities. The credit side accounts for an increase in liabilities, income and decrement in expense and asset base. Both credit and debit sides of the ledger correspond to each other. An example of a single entry system of a company is shown below for the transaction of a particular month that required accounting for the monthly financial statement. Currency 1. Salaries 2,000 2. Sale of goods for cash 5,000 3. Sale of goods on credit 15,000 4. Receipts from credit customers 10,000 5. Purchase of goods for cash 20,000 6. Unpaid utilities 3,000 In the dual entry system, the transactions would be recorded as shown below: Account Cause Debit Credit currency currency 1. Salary Expense Increase in expense 2,000 Cash at bank Decrease in assets 2,000 2. Cash in hand Increase in assets 5,000 Sales revenue Increase in income 5,000 3. Receivables Increase in assets 15,000 Sales revenue Decrease in income 15,000 4. Cash at bank Increase in asset 10,000 Receivables Decrease in asset 10,000 5. Purchases Increase in expense 20,000 Cash at bank Decrease in asset 20,000 6. Utility Expense Increase in expense 3,000 Accrued expenses Decrease in asset 3,000 Money measurement requires that only transactions that provide a monetary value or are measurable in monetary value be recorded in the business financial statements. According Celsi, Money, Samouel, Page (2011) all financial transactions in business must be given a monetary value and all transactions failing to attain a monetary value should be in the statement. Celsi et al. (2011) also note that money measurement of a business entity is used to show shareholders the current value of business transactions occurring over certain periods. Monetary stability refers to the business’ ability to stay afloat financially, have the ability to clear debts and liabilities and trade on credit facilities. A financially stable business ensures that it makes profits and maintains the business operations preventing the business from failing. Human resource refers to the human capital, the workforce of the business or staff. The human resource department is tasked with the hiring and firing of staff, staff welfare in relation to company duties and ensures that staffs are accountable to the company and also ensure productivity of staff in the business. Celsi et al. (2011) opine that the human resource is critical to the business and its relation to the state to tax and legal evaluations, ensuring the company prevents loss through monitor systems of staff. Success or failure of the business is dependant on the productivity of the employee or employee's dissatisfaction which can cause employees to desert their duties. Human resources in a company can either be fully inclusive or partially inclusive with outsourcing done by the business to reduce operational cost, therefore, saving the business funds. All the staff working for any business is human capital for the business and is under human resources such as chefs in a restaurant. Outsourcing or business process outsourcing is where a business outsources the services of another company to reduce operational costs. An example is where telecom companies outsource services of call centers to handle customer- service related issues. According to Spence, Laura and Rutherfoord (2011), goodwill is the social capital and ability of a company to pay for a good or service in its acquisition well above market rates. Goodwill is usually seen by competitors in the same field as an unfair bargain in business expanse and acquisition since companies with financial muscle are given the chance to invest and grow, therefore, locking out competition and increasing the risk of monopoly. Goodwill in a business entity is as an intangible asset which owners or shareholders use to gain back funds invested in the business aside from accrued value when selling the business. For instance, when Deacons clothing store wanted to acquire Mr. Price stores, they had to pay the goodwill first before paying the trade price to acquire the stores. Brands refer to the product relation and image portrayed on the product or service to its customers. Brands create a notion in the business for customers on what to expect from a good or service they are paying for and also acts as marketing strategies to attract customers to the business. According to Wood (2000), effective branding ensures a business hold a considerable portion of the market share it operates. Wood also notes that strategic and consistency in branding ensures the business increases in value and gains a stronger asset base. References Boldrin, Michele, Lawrence J. Christiano, and Jonas DM Fisher. Habit persistence, asset returns and the business cycle. Federal Reserve Bank of Minneapolis, Research Department, 2000. Carcello, Joseph V., and Terry L. Neal. "Audit committee characteristics and auditor dismissals following “new” going-concern reports." The Accounting Review 78.1 2003 Celsi M, W. Money, A. H Samouel, Page M. J. Essentials of Business Research Methods 2011 Spence, Laura J, and Robert Rutherfoord. "Small business and empirical perspectives in business ethics: Editorial." Journal of Business Ethics 47.1 2003 Wang W and Zhang W. "An asset residual life prediction model based on expert judgments." European Journal of operational research 188.2 2008 Wood, Lisa. "Brands and brand equity: definition and management." Management decision 38.9 (2000) Read More