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Assets, Tangible vs Intangible Assets, Current & Long Term, Accounts Receivables - Part 5 of 12 - YouTube
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some of the financial statements now let's look at聽
the elements of accounting we are slowly getting聽聽
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into the meat of the subject in order for anyone聽
to be able to generate the financial statements聽聽
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or have a complete grip of the accounting聽
subject there are certain basic things聽聽
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that one should be aware of as such聽
it is imperative for us to know聽聽
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about the elements of accounting because once聽
we are clear with these basic terms it would be聽聽
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easier to cover the accounting process there are聽
three elements that we need to understand they聽聽
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are assets liabilities and capital let us start聽
with assets you will understand what an asset is聽聽
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and i'll give you some of the examples and we will聽
discuss about the different types of assets so聽聽
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what is an asset assets are the items that your聽
company owns that can provide future economic聽聽
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benefit and at the opposite side of assets we聽
have liabilities assets put money in your pocket聽聽
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liabilities take money out of your pocket let's聽
look at the examples of assets we have cash聽聽
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we have cash equivalents we have accounts聽
receivables we have inventory we have power聽聽
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plant and equipment these all things will fall聽
under category of assets let's talk about them聽聽
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one by one cash cash is the most important聽
asset of an organization it is important for聽聽
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an organization to have cash because it shows聽
the liquidity position of a firm how much cash聽聽
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does the firm hold in hand is if you have cash聽
it means that the firm is in a good position聽聽
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to pay out to its vendors to its employees聽
and carry on with its operational activities聽聽
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without much issues so cash is considered as the聽
most important asset for an organization we have聽聽
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something called cash equivalents cash equivalents聽
are called assets because they are short-term聽聽
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investments these investments can be into聽
treasury bills government bonds securities聽聽
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etc these are called assets because they can be聽
readily converted into cash whenever there is a聽聽
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need for cash it is cash but in other form okay聽
now we have accounts receivables in short it is聽聽
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referred to as ar and also sometimes it is also聽
known as trade receivables accounts receivable聽聽
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is nothing but the amount of money that we聽
are to receive from the customers in future聽聽
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since we receive the money from our customers聽
or our clients it is considered a form of cash聽聽
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because cash is an asset accounts receivable is聽
also an asset you might ask what if the customers聽聽
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or the clients do not pay us back for that very聽
reason we have something called purchase order聽聽
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let's say you have company a and company b聽
and company a is selling items to company b聽聽
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in that case company b would issue something聽
called purchase order to company a now this聽聽
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purchase order is a legally binding document in聽
the event if company b doesn't pay company a it's聽聽
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money in its due course then company a has all聽
the rights to sue company b so that is the reason聽聽
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a purchase order is taken from companies for any聽
exchange of services and that is how they would聽聽
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recover the money okay so accounts receivable is聽
an asset because we're gonna get money from other聽聽
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company in some point in time okay now we have聽
also something called inventory what constitutes聽聽
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as an inventory it is the raw materials goods聽
that are semi-finished are fully finished聽聽
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and why are they considered asset because we can聽
sell them and we can generate cash hence it is聽聽
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considered as an asset just that we're聽
discussing about inventory let me also聽聽
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briefly touch upon what is a raw material聽
semi finished goods and fully finished goods聽聽
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so that we are clear with these terms as well raw聽
materials is the basic components that the company聽聽
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uses to make its products and semi-finished is聽
partially finished goods whereas fully finished聽聽
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is a fully ready product that can be sold into聽
the market and then we have something called聽聽
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power plant and equipment it is denoted as p p聽
and e so ppne this is how it is referred to as聽聽
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and most of the organizations will have the聽
properties like buildings factories land and聽聽
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etc and then machinery and equipment okay these聽
all things hold economic and monetary value聽聽
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because if we sell them in the market we get cash聽
hence they are considered as assets the difference聽聽
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is that these are tangible assets which we can聽
see feel and touch and these assets are vital to聽聽
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the operations of the business because if we do聽
not have machinery or the plant or the equipment聽聽
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then there is no way that the company can go聽
ahead and produce goods to sell in the market聽聽
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and these are all hefty investments okay聽
because these are all hectic investments聽聽
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these hold economic and monetary value if there聽
is a need you can very well sell them and generate聽聽
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cash hence they are considered as assets okay but聽
there is one thing that you need to remember some聽聽
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of these assets will depreciate over a period of聽
time like the machinery the building the equipment聽聽
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these all things will depreciate over a period聽
of time i think the exception is the land聽聽
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which will appreciate over a period of time so we聽
need to consider the depreciation value as well聽聽
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okay i will talk about them when we talk about聽
depreciation so think of asset as anything that聽聽
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you can make cash if you sell them in the event聽
you need capital for the business now that we have聽聽
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seen the examples of assets let's also categorize聽
these assets and if i expand the asset types聽聽
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you will see here they're divided into two primary聽
categories current assets and fixed assets other聽聽
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name for current assets is short-term聽
assets the other name for fixed assets is聽聽
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long-term assets let's first see what is current聽
assets current assets are those assets that can be聽聽
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easily liquidated when i say liquidated it聽
means it can be converted into cash if needed聽聽
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for example let's say you have gold it can be聽
liquidated in a day if needed likewise you have聽聽
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shares of a well-known company they can be sold at聽
a click of a button and can be converted into cash聽聽
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right so any asset that can be liquidated easily聽
is termed as current assets and from the examples聽聽
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the short-term assets are the cash the cash聽
equivalents the accounts receivables and the聽聽
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inventory okay because they can be sold and can聽
be converted into cash within a year's time in the聽聽
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accounting world if we say short term short term聽
is within one year or within the accounting period聽聽
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in the long term means something that goes聽
beyond a year two or more now one important聽聽
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point to make a note of is any expenses that you聽
make up front like prepaid rents prepaid expenses聽聽
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are considered as assets can you tell why聽
these expenses or the rents are considered as聽聽
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assets when they should be considered as聽
liabilities the reason is because if we have not聽聽
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paid them up front they would have been counted as聽
a cash in hand and for that very reason anything聽聽
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which is prepaid even the expense or the rents聽
or anything is considered as a current asset聽聽
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because you also don't have to pay them going聽
forward because you already have made the payment聽聽
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now let us see what fixed assets are this is聽
simple to know the other name for fixed assets聽聽
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is long-term assets fixed assets are those assets聽
that can be used in the business operations that聽聽
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have a span of more than a year an examples of聽
fixed assets of property plant and equipment often聽聽
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abbreviated as ppne apart from the current assets聽
and fixed assets we have two more asset categories聽聽
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like tangible assets and intangible assets what聽
is the meaning of tangible tangible is nothing but聽聽
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something that you can see feel touch and sense聽
so from the above example if we carefully observe聽聽
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can cash be felt and touched yes right because聽
it can be touched and felt it is a tangible asset聽聽
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similarly can you touch the inventory yes聽
it can be felt and touched and this is also聽聽
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called as tangible asset now let's look at the聽
intangible assets this is interesting there is聽聽
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a certain criteria for an asset to be considered聽
as intangible okay the first criteria is it cannot聽聽
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be a current asset the second criteria is聽
it cannot be a physical asset and the third聽聽
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important criteria is it should have future聽
economic value when i say future economic value聽聽
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it means something that can generate money聽
so if we take the example of let's say cash聽聽
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can it be an intangible asset so let's look at聽
the criteria and understand whether it is an聽聽
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intangible asset or not so the first criteria is聽
it cannot be current asset, Is cash a current asset聽?
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yes very much so it is not an intangible聽
asset and also cash is something聽聽
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that you can see and feel since it is both聽
current asset and physical asset it cannot聽聽
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be considered as an intangible asset let's say聽
accounts receivable and we consider this as an聽聽
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intangible asset let's look at the criteria again聽
intangible asset says it cannot be a current asset聽聽
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whereas accounts receivable is a current asset so聽
so it cannot be considered as an intangible asset聽聽
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so if we look at the examples of intangible assets聽
we have brand value we have goodwill we have聽聽
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trademarks we have patents we have intellectual聽
properties we have copyrights and we have logos聽聽
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brand value why is it called as an intangible聽
asset to understand can you feel and touch the聽聽
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brand value does it have a physical presence the聽
answer is no you cannot feel and you cannot touch聽聽
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it so you may get the question why is even brand聽
value considered as an asset it's just a name聽聽
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it's just the brand name how can it be an asset聽
to give you an example when i google the brand聽聽
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value of coca-cola name as per 2020 valuation聽
it is valued at 84 billion dollars meaning聽聽
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if coca-cola is ready to sell just its name聽
nothing else not the property not the company聽聽
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but just the name there are investors there聽
are people who are ready to purchase the name聽聽
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at 84 billion dollars because these investors know聽
if they can produce some cola drink and stick its聽聽
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name there it will sell because of the brand value聽
hence brand value is an important asset though it聽聽
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may not exist in physical form though it is not聽
a current asset but it is a very important asset聽聽
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intangible assets are very important a side note聽
for you if you really think about the brand brand聽聽
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is nothing but a perception in people's mind that聽
was built over a period of time you cannot see it聽聽
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but it plays an important role so piece of advice聽
from me build your brand as an individual your聽聽
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actions your commitment your ability to stick聽
to your commitments and ability to show results聽聽
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will create a perception in people's mind and聽
this can happen only if you're consistent over聽聽
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a period of years and this is how you build聽
your brand all right let's go back to the topic聽聽
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so let's see what are the other intangible聽
assets so brand is one likewise goodwill聽聽
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trademarks patents intellectual properties聽
copyrights and logos these are our examples of聽聽
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intangible assets so that brings us to the end聽
of assets category so we have discussed about聽聽
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current assets fixed assets tangible assets and聽
intangible assets now let's move on to liabilities
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