4. Classified Balance Sheet

What is an unclassified balance sheet?

Broadly groups accounts into assets, liabilities, and equity.

Review figure for regular balance sheet

What is a classified balance sheet?

Organizes asset and liabilities into subgroups.

Review figure for classified balance sheet.

What are categories that can go under assets in a classified balance sheet?

Current assets, Long-term investments, plant assets, intangible assets.

What are categories that can go under liabilities and equity in a classified balance sheet?

Current liabilities, Long-term liabilities

An important classification is the separation between…

current (short-term) and noncurrent (long-term) for both assets and liabilities.

When are current items expected to come due (either collected or owed)?

within one year or the company's operating cycle, whichever is longer.

What is the operating cycle?

the time span from when cash is used to acquire goods and services until cash is received from the sale of goods and services. Most operating cycles are less than one year, which means most companies use a one-year period to classify current and noncurrent items.

What should we assume an operating cycle length is unless stated otherwise?

One year.

On a classified balance sheet are current assets or noncurrent assets listed first?

Current assets are listed before noncurrent assets. Same for liabilities.

How are current assets and current liabilities listed on the classified balance sheet?

in order of how quickly they will be converted to, or paid in, cash.

What are current assets?

cash and other resources that are expected to be sold, collected, or used within one year or the company's operating cycle, whichever is longer.

Give some examples of current assets.

cash, short-term investments, accounts receivable, short-term notes receivable, merchandise inventory (goods for sale), and prepaid expenses.

What are long-term investsments?

include notes receivable and investments in stocks and bonds when they are expected to be held for more than the longer of one year or the operating cycle.

What are plant assets?

Tangible assets that are both long-lived and used to produce or sell products and services.

What are examples of plant assets?

equipment, machinery, buildings, and land that are used to produce or sell products or services.

What are intangible assets?

Long-term assets that benefits business operations but lack physical form.

Give examples of intangible assets.

patents, trademarks, copyrights, franchises, and goodwill. Their value comes from the privileges or rights granted to or held by the owner.

What are current liabilities?

Liabilities due to be paid or settled within one year or the operating cycle, whichever is longer. They usually are settled by paying out cash.

Give examples of current liabilities

accounts payable, wages payable, taxes payable, interest payable, and unearned revenues. Also, any portion of a long-term liability due to be paid within one year or the operating cycle, whichever is longer, is a current liability.

What is equity?

The owner’s claim on assets.

Is equity separated into current and noncurrent categories?

No.

Review Need-To-Know 4-3