In new session, we will look at the left side of a balance sheet. So, we have already seen that in a balance sheet, on the left side, it shows assets and on the right side, liabilities and owner's equity. So, on the left side, there are current assets and non-current assets and there are various items and we will look at one by one. Current assets are assets that can be converted to cash within one year. There are cash and cash equivalents, and there are money in the bank, stocks and bonds, and there is accounts receivable, that means the customers get products or services from you but they haven't paid the cash yet. So, it's like a loan from the company to your customers. There inventories and there are three kinds of inventories for production company: raw matures, work-in-progress. There are inventory under production and finished goods inventory, they are products ready to be sold. To build up inventory, you need to pay cash and reducing inventory improves the cash level and we will talk about this later more in detail. Here's an example of prepaid assets. Suppose that rent for a factory is $5,000 per month, but you need to pay the rent for one year in January. So, you have to pay 60,000. If you record income statements every month, then in January, you put $5,000 on the income statement for rental expenses. The remaining $55,000, although you already paid, it still is your asset. So, this is a prepaid asset. So, prepaid assets will decrease monthly by $5,000 until December when it becomes zero. There are non-current assets like PP and E, which means Property, Plant and Equipment, and this includes buildings, machinery, computers, and other physical assets. When you record this value, you record at the purchase price. This is by the principle of conservatism and it's like let's use what you know, which is the cost of acquiring those assets. Most of these assets lose value with time like machines have a finite lifetime. So, you subtract the accumulated depreciation, except land, for land there's no depreciation and we will talk about depreciation later more in detail. There are intangible assets. For example, your company produces a new drug which is protected by a 20-year patent and this patent will generate revenue and so, this is considered an intangible asset. Like the physical assets, these intangible assets should be amortized. Amortization is equivalent to depreciation of physical assets and you should amortize this patent over the lifetime of the revenue stream they generate. But there are many intangible assets that do not appear on the balance sheet like employees, know-how, brand name, your reputation, and strategic strengths. If there is an item called goodwill, that means this company bought to another company and it is expressed like this; price paid for the acquired company, minus the net assets of this company. Here's an example. You bought this company X for five million dollars, and the value of the company like buildings, inventories, minus liabilities is two million dollars. But you paid five million dollars, three million dollars more because you feel that company X is a brand power, customers, and employees and these intangible assets are worth three million dollars. So, this is goodwill. In summary, current assets are those that can be converted to cash within one year. We talked about PP and E and we do depreciation except land, and we talked about intangible assets like patents, and we talked about goodwill.
