If you are new at owning a business or plan to own one soon, you will need to learn about proper finance management. A business plan must be developed, along with raising the means to get your business off the ground. Once you are up and running, you will need to learn about the different aspects of business finance. Let's start with one of the basics - assets.

Your business will have assets, which are typically called current and non-current. Current and non-current assets are integral parts of running a business successfully. Defining them and finding their differences are important to understanding how they work. The order of liquidity of these assets and how they apply to the balance sheet is also important in managing good finances in business.

Current assets are those assets belonging to a company that are cash or will become cash, usually within the year. Examples of current assets include cash, short term investments, receivables, inventories, and pre-paid expenses. Current assets also refer to those that a company plans to empty within a year, such as supplies. Accounts receivables are considered current assets, if the accounts are expected to be collected within the year. Current assets play an essential role in some of the ratio analysis used to determine a company’s profitability.

Non-current assets are properties belonging to the business, such as business equipment that has been used for more than a year, and are not expected to be converted into cash within the operating cycle. Non-current assets include furniture, land, buildings, tools and equipment, machinery, computers, other fixed assets, leasehold improvements and intangible assets, such as the company’s trademark, copyright, etc. Non-current assets are not easily converted to cash.

The difference between current and non-current assets is the time frame of when and whether or not the asset can be converted into cash. Current assets are convertible within the year and non-current assets are expected to be convertible in over a year, if ever. Current assets help accelerate growth for a company, whereas non-current assets, such as inventory or buildings, attempt to promote growth, but take a longer period of time to do so. Both current and non-current assets are listed on the Balance Sheet.

A good financial management team will keep a balance sheet and have items listed on it in order of liquidity. The balance sheet is one of the three primary financial statements that companies must prepare at least once a year and reports assets and claims. The balance sheet is a company’s statement of their financial position of status and is used to show where a company stands financially at any given time. Assets and claims are divided into two categories: claims of creditors (known as stockholders’ equity) and claims of owners (known as liabilities). In essence, the balance sheet is a snapshot of the business in dollar terms and includes three sections: assets, liabilities and owners’ equity. When combined, these make the document an expansion of the basic accounting equation. The amount of total assets is equal to the total amount of liabilities and owners’ equity, which is typically why this sheet is called a “Balance Sheet.”

The order of liquidity refers to the order (or how fast) in which companies expect to turn current assets into cash. In turn, this appears on the balance sheet and displays assets that a company expects to convert into cash first, with the second coming next, and so forth. The closer an asset is to becoming cash, the higher it appears on the Balance Sheet. On a typical balance sheet for a company, cash is generally listed first, followed by investments in marketable securities, receivables, inventory and prepaid expenses.

The order of liquidity is important to the Balance Sheet because the document needs to show its assets in order for it to be converted to cash. Therefore, the Balance Sheet shows a company’s potential profitability and its ability to pay short-term debt. Profitability is important to companies that wish to stay in business.

Current assets enable a company to act fast on projects and contribute to reaching success. Investing in non-current assets, such as buildings and equipment, brings a company closer to goals that need to be achieved. The balance sheet and the order of liquidity provides additional and essential information that is crucial for a company to see where it stands and helps management teams make informed decisions geared toward profitability.