Non-current Assets
Capital and Revenue Expenditure
The matching principle of accounting requires that only the expenses which incurred to earn revenue in current accounting period shall be charged off/ subtracted from that revenue to calculate profit for the period.
Therefore, if any expense incurred in the period but could not be utilized to earn the revenue in this period shall be classified as Asset at the end of accounting period. For Example, your company purchased 10 stationary registers for day to day use but at the end of accounting period could only utilized 3 registers, thus leaving 7 registers unutilized. These 7 registers will be carried forward as an asset for being utilized in next accounting period to perform business activities and to facilitate earning revenues.
Similarly, the intention to purchase a truck for business activities is to use this for periods longer than a single accounting period. Hence such expense for which economic benefits could be obtained for more than a single accounting period are recorded as asset/ capital expenditure.
The assets are further classified as
Current Assets
Those assets which are intended to be used/ utilized or from which economic inflows are expected within the next accounting period (usually 12 months) are classified as current assets. Examples of non-current asset are inventory, cash, short term investments, and receivables.
Non-Current Asset
The asset from which economic inflows are expected for more than one accounting periods are classified as non-current Assets. For example land, buildings, plant, machinery and vehicles are classified as non- current assets.
The classification of the assets into current and noncurrent assets, is also dependent on the company’s nature of business as well for example for a car manufacturing company, produced cars will be considered as inventory and will be classified as current asset. However, if the a similar car is being used for other business activities this will be classified as non-current asset.
The aforementioned classification is the most common way to classify a present the assets. However, this is not the only classification in which assets are categories. Assets can also be classified as tangible and Non-tangible assets.
Tangible Assets
An Asset/ economic resource, with physical existence/ tangibility or which can be touched is called tangible asset. Examples are inventory, property, plant and equipment’s etc. Further long term tangible assets ate also classified as Fixed Assets in Balance sheet of the company.
Intangible Assets
There are some economic resources which cannot be physically touched or seen but gives a business rights and results in economic inflows. For example right to use software or patent. Such assets/ resources are called intangible noncurrent assets. In modern word crypto currencies can also be classified as intangible assets.
