acc 201, quiz 2

What does a classified balance sheet consist of?

assets, liabilities, and stockholders’ equity

what are different types of assets?

• current assets

• long-term investments

• property, plant, and equipment (PP&E)

• intangible assets or other assets

current assets

These are the assets that a company expects to convert to cash or use up within one year or the operating cycle (whichever is longer).

• An operating cycle is the average time it takes to turn inventory into cash

  • product-based company: buy inventory → sell inventory → invoice customer → collect the cash

  • service-based company: provide the service → invoice the customer → collect the cash

The order of liquidity for current assets is based on how soon they will become cash or get used up

• cash

• short-term investments

• accounts receivable

• inventory

• supplies

• prepaid expenses

• notes receivable, short-term

long-term investments

these are investments not used in operations. the order of liquidity is based on how soon they will become cash, or get used up.

• notes receivable, long-term

• long-term investments

• stock investment

• debt investment

• land or building held for inventory or resale

property, plant, and equipment (PP&E)

these are assets that have a useful life of more than one year and are currently used in operations. they are reported on the balance sheet at book value.

• book value = cost of asset - accumulated depreciation

the order of liquidity is based on how soon they will need to be replaced:

• buildings

• land

• equipment

• vehicles

• furniture

• household investment

intangible assets or other assets

these assets have no physical substance (intangible). the order of liquidity is based on how soon they will no longer provide value.

• patents

• copyrights

• trademarks

• trade names

• goodwill

what are the different kinds of liabilities?

• current liabilities

• long-term liabilities

current liabilities

the order of liquidity for current liabilities is based on how soon they need to be paid off.

• accounts payable

• unearned revenue

• interest payable

• salaries and wages payable

• income taxes payable

• notes payable (this is a long-term liability by default)

long-term liabilities

these are liabilities that are to be paid off more than one year from now. the order of liquidity remains the same.

• notes payable

• mortgage payable

• pension payable

• bond payable

stockholders’ equity

composed of:

• common stock

• retained earnings