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Chapter 7 (Part A) : Financial Assets

Financial assets are assets that derive value from a contractual claim rather than being a physical asset. The document discusses several types of financial assets including cash, marketable securities, and accounts receivable. Cash refers to money deposited in banks that a business owns. Marketable securities are short-term, highly liquid investments of excess cash. Accounts receivable represents money owed to a business from customers for credit purchases. The value of these financial assets is based on their face value, current market value, or net realizable value according to accounting principles. Businesses aim to manage cash levels to have enough for operations while excess is invested temporarily in marketable securities.

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174 views

Chapter 7 (Part A) : Financial Assets

Financial assets are assets that derive value from a contractual claim rather than being a physical asset. The document discusses several types of financial assets including cash, marketable securities, and accounts receivable. Cash refers to money deposited in banks that a business owns. Marketable securities are short-term, highly liquid investments of excess cash. Accounts receivable represents money owed to a business from customers for credit purchases. The value of these financial assets is based on their face value, current market value, or net realizable value according to accounting principles. Businesses aim to manage cash levels to have enough for operations while excess is invested temporarily in marketable securities.

Uploaded by

Abbas Sky
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 7 (Part a)

Financial Assets

Assets & Its Types


Asset:
Those things which are being owned by a business is called as
asset.

1.Financial Assets:
. An asset that derives value because of a contractual claim.
Stocks, bonds, bank deposits, and the like are all examples of
financial assets.

2.Real Assets:
. A type of asset that does not derive its value from any
contractual claim. E.g, Physical asset like Plant, Equipment etc.

Financial Assets
We have different financial assets present in a
company.

i. Cash:
. Money that is deposited in banks or in your hand or bank
accepts it as deposit is called as cash.

ii. Marketable Securities:


. Whenever you have extra or unwanted cash with you,
than for a wise financial manager, he should invest
that money into short term highly liquid assets. Those
assets are called as marketable securities.

Financial AssetsContt
iii. Accounts Receivables

Receivables is that money which your customer owe to you


because of credit purchase he did from you.
Receivables are treated as current assets as because it has
a life of less than one year but I can be for more than 1 year
too and still we will consider it as current asset.

Note:

We are now going to discuss each of the financial asset in


more detail form in coming lectures.

How to find value of Financial Assets

Basis for Valuation in


Type of Financial Asset
the Balance Sheet
Cash (and cash equivalents) Face amount
Short-term investments
Current market value
(marketable securities)
Receivables
Net realizable value

How Much Cash Should a Business


Have?
Collections
from
customers

Cash (and cash


equivalents)

Accounts

Cash
payments

receivable
Excess cash
is invested
temporarily.

Investments are
sold as cash is
needed.

Marketable securities
(short-term
investments)

Cash & Cash Management


CASH:
Money that is deposited in banks or in your hand or bank accepts it
as deposit is called as cash.

Different Terms Related to Cash:


1. Cash Equivalents:
Cash equivalents are the closest financial asset near cash.
Cash Equivalents is actually when you invest the extra money
to liquidize things.
Such investment is done for few days or a month.

2. Restricted Cash:
That amount of cash which is deposited in bank but
according to the rules you cannot withdraw the money
for running the business operations:

Cash & Cash ManagementContt


Bank agrees in advance to
lend money.

Lines of Credit

Liability is incurred
when line of credit is
used.

Unused line of credit is


disclosed in notes.

THANKS

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