Classifying Assets and Liabilities

These flashcards cover key terms and concepts related to classifying assets and liabilities, including definitions and accounting methods.

Assets

Resources owned by a business that have economic value.

Current Assets

Assets expected to be converted into cash or consumed within one year or the company's normal operating cycle.

Long-term Assets

Assets not expected to be converted into cash in the short term or within the next year.

Current Liabilities

Obligations that must be settled within one year or the normal operating cycle.

Operating Cycle

The process of acquiring raw materials, manufacturing goods, selling products, and collecting cash.

Liquidity

A measure of how quickly an asset can be converted to cash.

Accounts Receivable

Amounts owed by customers for goods and services sold on credit.

Inventory

Goods and materials that a business holds for the purpose of resale.

Property, Plant, and Equipment (PP&E)

Tangible long-term assets used in the production of goods and services.

Intangible Assets

Non-physical long-term assets that provide economic value, such as patents and trademarks.

Retained Earnings

Cumulative net income of a business that has not been distributed to shareholders.

Single-Step Income Statement

An income statement that subtracts total expenses from total revenues to calculate net income.

Multi-Step Income Statement

An income statement that presents revenues and expenses in different categories to provide detailed performance measures.

LIFO

Last-In, First-Out; a method of inventory costing where the last items purchased are considered the first sold.

FIFO

First-In, First-Out; a method of inventory costing where the first items purchased are considered the first sold.

Net Sales

Total sales revenue minus sales returns, allowances, and discounts.

Cost of Goods Sold (COGS)

The direct costs attributable to the production of the goods sold.

Lower-of-Cost-or-Market (LCM) Rule

GAAP principle requiring inventory to be reported at the lower of its historical cost or market value.

Assets

Resources owned by a business that have economic value.

Current Assets

Assets expected to be converted into cash or consumed within one year or the company's normal operating cycle.

Long-term Assets

Assets not expected to be converted into cash in the short term or within the next year.

Current Liabilities

Obligations that must be settled within one year or the normal operating cycle.

Operating Cycle

The process of acquiring raw materials, manufacturing goods, selling products, and collecting cash.

Liquidity

A measure of how quickly an asset can be converted to cash.

Accounts Receivable

Amounts owed by customers for goods and services sold on credit.

Inventory

Goods and materials that a business holds for the purpose of resale.

Property, Plant, and Equipment (PP&E)

Tangible long-term assets used in the production of goods and services.

Intangible Assets

Non-physical long-term assets that provide economic value, such as patents and trademarks.

Retained Earnings

Cumulative net income of a business that has not been distributed to shareholders.

Single-Step Income Statement

An income statement that subtracts total expenses from total revenues to calculate net income.

Multi-Step Income Statement

An income statement that presents revenues and expenses in different categories to provide detailed performance measures.

LIFO

Last-In, First-Out; a method of inventory costing where the last items purchased are considered the first sold.

FIFO

First-In, First-Out; a method of inventory costing where the first items purchased are considered the first sold.

Net Sales

Total sales revenue minus sales returns, allowances, and discounts.

Cost of Goods Sold (COGS)

The direct costs attributable to the production of the goods sold.

Lower-of-Cost-or-Market (LCM) Rule

GAAP principle requiring inventory to be reported at the lower of its historical cost or market value.

Balance Sheet

A financial statement that reports a company's assets, liabilities, and owner's equity at a specific point in time.

Accounting Equation

Assets = Liabilities + Owner's Equity

Long-term Liabilities

Obligations not due for settlement within one year or the operating cycle.

Owner's Equity

The residual claim on assets after deducting liabilities; represents the owner's stake in the company.

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life.

Gross Profit

Net Sales minus Cost of Goods Sold; represents profit before operating expenses.