The concept behind the balance sheet is very simple. Assets are economic resources that are expected to produce economic benefits for its owners. Assets can be buildings and machinery used to manufacture products. They can be patents or copyrights that provide financial advantages for their holder. Let us begin with a look at a few of the important types of assets that exist.
Current assets are assets that are usually converted to cash within one year.
Bondholders and other creditors closely monitor a firm's current assets since interest payments are generally made from current assets. It is the most basic current asset. In addition to currency, bank accounts without restrictions, checks and drafts are also considered cash due to the ease in which one can turn these instruments into currency. Cash equivalents are not cash but can be converted into cash so easily that they are considered equal to cash. Cash equivalents are generally highly liquid, short-term investments such as U.S. government securities and money market funds.