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Non-Current Assets: Definition & Examples

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  • 0:02 Non-Current Assets
  • 0:44 Examples
  • 1:49 Reporting Non-Current Assets
  • 2:24 Examples
  • 4:16 Lesson Summary
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Lesson Transcript
Instructor: Rebekiah Hill

Rebekiah has taught college accounting and has a master's in both management and business.

The accounting industry is centered on a basic equation: Assets = Liabilities + Owner's Equity. To fully understand this, you must first understand each component of the equation. In this lesson, we will discuss one category that falls under the classification of an asset: non-current assets.

Non-Current Assets Defined

Assets are important players in the accounting game. They are the items that are owned and controlled by either an individual or an organization. Assets are divided into several different categories. Current assets are the first assets that you will find on a balance sheet. These assets are the ones that will have their full value realized within 12 months of the balance sheet date.

Often called long-term assets, non-current assets are those that will not have their full value realized within 12 months of the balance sheet date. What does 'having their value realized' mean? Quite simply, that means that the asset is converted into actual cash that will be used to meet debt obligations.

Examples of Non-Current Assets

There are three main categories of assets that meet the criteria of a non-current asset.

Fixed Assets

The first category is called fixed assets. The items that would be reported here are such things as the building that houses a business, the equipment used in business operations, and the land that property is located on.

building

Long-term Investments

The second major category that fits into this class of assets is long-term investments. Long-term investments are investments that will not be turned into cash within 12 months. Examples of long-term investments are stock, bond, and real estate purchases.

Wall Street

Intangible Assets

The last major category of non-current assets is intangible assets. Intangible assets are those assets that cannot be physically touched but have value. For example, a trade name is an intangible asset. Other examples of intangible assets are copyrights, patents, brand names, trade secrets, and licensing agreements.

Reporting Non-Current Assets

Generally-accepted accounting principles set the standard for the manner in which assets, liabilities, and owner's equity are reported on the financial statements of a company. Assets are reported on the balance sheet in the order in which they can be turned into cash. This is called their order of liquidity.

The assets that are easiest to turn into cash are the most liquid assets and are classified as current assets. Non-current assets are the least liquid of all assets and usually take a number of years to be fully realized. These assets are reported last in the asset section of the balance sheet.

Examples

Let's say Lynn is the creator of a line of organic dog food called Lynn's Happy Hounds. Her business has been running well, but she is ready to expand. She decides to apply for a loan to add on to the current facility that houses the manufacturing equipment for her organic dog food. Part of the loan application asks Lynn to list her assets. Below is the list that Lynn submits:

  • Cash
  • Accounts receivable
  • Machinery
  • Building

Of the items on this list, what are Lynn's non-current assets?

Lynn's non-current assets are her machinery and her building. These are the two items that she has listed that will not be completely used up within a year. Cash and accounts receivable are generally expected to be used within the allotted 12-month period, so they are current assets.

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