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if we focus on the left hand side of the balance sheet we have assets assets can be classified into two types current asset and fixed asset so the current assets are the assets having shorter lives usually less than one year for example cash accounts receivables and inventories the other type of asset is the fixed assets which has longer lives for example equipments machineries building patterns these acids normally have life more than one year now if we focus on the right hand side the first thing is current liabilities which contain the liabilities of the firm that must be repaid within one year period for example accounts payable among the long term depths we can give example like corporate bonds or long term borrowing from the banks

so these are the liabilities that does not have to be repaid within one year and the owner’s equity are essentially the claims of the owners okay maybe it is their investment or maybe the profit generated from their investments for example common stock or retained earnings so these are the components of the balance sheet and these components can also be related to different areas of finance for example the fixed assets are related to capital budgeting because when the firm decide in which assets which long-term assets that form should invest they actually determine the fixed asset component of the business organization so this is related to capital budgeting now the long-term depth and owner’s equity these part of the balance sheet is related to capital structure decision because if the firm decide how much to borrow and how much to get from the owner

that is essentially the capital structure of the firm now the remaining portion current assets and current liabilities okay both of these two have shorter lives less than one year one year or less okay so the management of current assets and current liabilities this is related to the working capital management area of business finance I hope that you have understood what is finance which areas are within the scope of business finance and also how we can relate the balance sheet offer form with the areas of Finance

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