Question

Browning Inc. is a small start-up software development firm. It currently owns computer equipment worth $30,000; has cash on hand of $75,000 contributed by Browning’s owners. For the transaction below, identify the real and/or financial assets that trade hands.

Browning takes out a bank loan where it receives $50,000 in cash and signs a note promising to pay back the loan over four years at 7.5% interest

Answer 1

Financial assets are no-physical in nature whose value can be derived from a contractual claim like bonds, security, checkable deposits. However, real assets are tangible possessions of the business like plants, land, and inventory. Needless to say, they are value-generating and can be turned into cash though not as quick as financial assets.

When Browning took a bank loan and received  $50,000 in cash and signed a note promising to pay back the loan over four years,

A Financial Asset was created,

Cash being highly liquid is the financial asset that was created for Browning Inc.

Financial Asset Created

• Cash: $ 50,000

Moreover, a promising note was signed therefore on the liability side also rose by the same value and would decrease over the loan tenure which is four years.