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B. Read the text. Classifying assets. Assets may be grouped according to the degree of liquidity or the expected conversions to cash or the time it takes to use up the assets




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Classifying assets. Assets may be grouped according to the degree of liquidity or the expected conversions to cash or the time it takes to use up the assets. For analytical purposes, assets are classified as follows:

Current assets are cash and other assets that can reasonably be expected to be converted to cash, used up, or sold within 1 year or less. Thus, on the classified balance sheet, current assets are listed first, based on their relative degrees of liquidity. Examples of current assets include supplies, insurance, and accounts receivable.

Investments may be either short- or long-term assets depending on the nature of the investments. Generally, bonds are considered long-term investments, whereas stocks may be either long-or short-term investments. Investments generally appear immediately following current assets on the classified balance sheet.

Property, plant and equipment are tangible, long-term assets; they are used in the continuing operations of the business and are expected to have useful lives of more than 1 year. They are also known as plant assets or fixed assets.

Intangible assets are usually long-term in nature and are traditionally shown on the classified balance sheet after plant assets. They lack physical substance and in some cases represent a right granted by a government (patent) or another company (franchise).

Classifying liabilities. Liabilities are classified in a similar manner. Liabilities are considered to be current liabilities if the obligation is to be settled within 1 year or within the current accounting period. These debts are usually settled with the payment of current assets. Examples of current liabilities are accounts payable, taxes payable, salaries payable, and notes payable.

Following current liabilities on the balance sheet are long-term liabilities, which are usually payable in more than a year. Examples of long-term liabilities include bonds payable and mortgages payable. In the year in which a long-term liabilities becomes payable, it is usually converted to a current liability.

 

C. According to this exhibit explain the classification of assets and liabilities.

The current and long term classification of assets and liabilities



Liabilities
Current · Accounts payable · Short-term notes payable
Long-term · Bonds payable  
Assets
Current · Cash · Inventory · Accounts receivable
Long-term · Land · Plant and equipment  

 

 


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