Assets are classified into two main categories based on how long the business intends to use them.

Fixed Assets

Fixed assets are tangible items that a business owns and uses for a long period (usually more than one year) to generate income. They are not bought for resale.

• Examples: Buildings, motor vehicles, furniture, machinery, computers, premises

Current Assets

Current assets are assets that are expected to be converted into cash or used up within one year or the normal operating cycle of the business.

• Examples: Cash at bank, cash in hand, accounts receivable (debtors), stock (inventory)

Liabilities are classified based on when they must be repaid.

Long-Term Liabilities

Long-term liabilities are debts that are payable after one year from the balance sheet date.

• Examples: Bank loans, mortgage loans, long-term bonds

Current Liabilities

Current liabilities are debts that are payable within one year or the normal operating cycle.

• Examples: Accounts payable (creditors), bank overdrafts, wages payable, taxes payable

Use these simple rules to classify any account:

• Fixed assets → items used for operations, last more than one year
• Current assets → cash or items that will become cash within one year
• Long-term liabilities → debts due after one year
• Current liabilities → debts due within one year

Mwanajuma owns a small shop in Dodoma. The following items were extracted from her records on 31 December 2023:

• Cash in hand: TZS 150,000
• Shop building: TZS 5,000,000
• Motor van: TZS 2,000,000
• Stock of goods: TZS 800,000
• Creditors: TZS 300,000
• Bank loan (repayable in 3 years): TZS 2,500,000
• Debtors: TZS 200,000
• Cash at bank: TZS 450,000

Solution

Classify each item:

Summary:

• Total Fixed Assets: TZS 7,000,000 (building + motor van)
• Total Current Assets: TZS 1,600,000 (cash in hand + stock + debtors + cash at bank)
• Total Current Liabilities: TZS 300,000 (creditors)
• Total Long-Term Liabilities: TZS 2,500,000 (bank loan)

• Ask yourself: "Will this item be used up or sold within one year?" → If yes, it is a current asset.
• Ask yourself: "When must this debt be paid?" → If after one year, it is long-term; if within one year, it is current.
• Discuss with classmates different business items and their correct classification.

In Tanzania, small business owners like Mama Nima who runs a duka la jumla in Mwanza use asset and liability classification every day. She must know that her shop building and scales are fixed assets, while her cash in the M-Pesa account and stock of rice and beans are current assets. Similarly, when she borrows money from a VICOBA group to expand her business, she must record it as a long-term liability, while money owed to local suppliers (creditors) is a current liability. This helps her understand whether her duka is truly profitable or heavily in debt.