Property and capital of the enterprise - characteristics
Each unit has specific assets, thanks to which it is possible to conduct business, achieve sales goals, maintain continuity and development. The company's assets shown in the balance sheet assets have their sources of financing known as capitals (funds). Capitals, also called liabilities, are equal to the assets of the property resources engaged in a given unit by the owners of this enterprise or its environment. They illustrate who, for what time and under what conditions equipped the entity with the assets. In this article, we describe what constitutes the company's assets and capital.
What is the company's assets?
Assets are resources controlled by the entity as a result of past events from which the entity is expected to achieve economic benefits in the future. The company's assets consist of many elements, incl. buildings, structures, machinery, equipment, means of transport, materials, finished goods and cash.
We classify assets according to the time of their transformation into cash into two groups:
fixed assets - they are characterized by a long period of use (the period of economic usefulness in the entity exceeds 12 months), high value and a low degree of liquidity;
current assets - as a rule, they should be used and bring economic benefits within 12 months, they are characterized by a high degree of liquidity.
Fixed assets include, for example, intangible assets, land, buildings and structures, technical equipment and machinery, fixed assets, and fixed assets under construction. The group of fixed assets also includes long-term receivables, long-term investments and long-term periodic settlements.
Current assets constitute profits from the sale of services and goods as well as the consumption of economic resources in the course of business activity, and they include in particular: materials, goods, finished products, semi-finished products and work in progress. The group of current assets also includes short-term receivables, short-term investments and short-term prepayments.
Asset Funding Sources
The assessment of the company's financial and property standing consists not only of information about the resources held, but also about their sources of origin. Capital is a valuable reflection of the possessed property resources (assets), taking into account the ownership right.
We distinguish the following sources of financing (origin) of assets:
own (equity) - the equivalent in monetary units of property resources financed from own resources and generated by the enterprise;
external (foreign capital, liabilities) - the equivalent of property resources, expressed in monetary units, financed from funds entrusted to a given enterprise by other enterprises, institutions or natural persons.
The main difference between equity and liabilities is that liabilities have been placed at the disposal of the individual for a specified period of time. The return of liabilities results in a reduction of the entity's property resources, but the consequence of using foreign capital should, as a rule, generate higher profits and, consequently, increase in assets.
Equity - distribution
Equity is indefinite, interest-free, is a safe source of financing, has a beneficial effect on the financial liquidity of the entity and protects the return of creditors' capital. In the event of losses in the enterprise, the value of equity capital decreases, and in the event of bankruptcy or liquidation, the owners' claims are settled last.
The following components of equity capital have been distinguished in the balance sheet:
other reserve capitals,
Profit (loss) from previous years,
net profit (loss),
write-offs from net profit during the financial year.
Art. 14 of the Code of Commercial Companies
„A non-transferable right or performance of work or services cannot be the subject of a contribution to a capital company”.Internal equity includes contributions, profit, depreciation write-offs or the sale of assets, while external equity includes subsidies of partners or shareholders and the issue of shares. Start a free 30-day trial period with no strings attached!
Foreign capital in the enterprise
Foreign capital is timely and interest bearing, it is a flexible source of financing, it improves financial liquidity, and at the same time makes the company dependent on creditors and carries a certain risk of bankruptcy of the entity. In the event of bankruptcy or liquidation, the creditors' claims are met in the first place.
Foreign capital is always external in nature, as it is funds obtained from third parties who are not owners or shareholders of the enterprise. External foreign capital includes various types of loans, borrowings, debt securities, leasing, factoring, grants and subsidies or aid funds.
We divide external capital according to the maturity date into:
long-term - maturity over a year.
- short-term - maturity less than one year.