Accounting Chapter 4.2 Flashcards

Questions and Answers

Equipment is classified in the balance sheet as?

a long-term investment

a current asset

property, plant, and equipment (correct)

an intangible asset

A current asset is?

the last asset purchased by a business

an asset that a company expects to convert to cash or use up within one year (correct)

usually found as a separate classification in the income statement

an asset which is currently being used to produce a product or service

An intangible asset?

does not have physical substance, yet often is very valuable (correct)

cannot be classified on the balance sheet because it lacks physical substance

is converted into a tangible asset during the operating cycle

is worthless because it has no physical substance

On a classified balance sheet, current assets are customarily listed?

in the order of liquidity Signup and view all the answers

The relationship between current assets and current liabilities is important in evaluating a company's?

liquidity Signup and view all the answers

All of the following are property, plant, and equipment except?

supplies Signup and view all the answers

Which of the following would not be classified as a long-term liability?

Current maturities of long-term debt Signup and view all the answers

The most important information needed to determine if companies can pay their current obligations is the?

relationship between current assets and current liabilities Signup and view all the answers

What is the order in which assets are generally listed on a classified balance sheet?

Current; long-term investments; property, plant, and equipment; intangible assets Signup and view all the answers

Current liabilities?

are obligations that the company is to pay within the forthcoming year Signup and view all the answers

Study Notes

Classification of Equipment

Equipment is classified on the balance sheet as property, plant, and equipment (PP&E), which reflects its long-term usage and value to operations.

Understanding Current Assets

Current assets are defined as assets a company expects to convert into cash or utilize within one year, which is crucial for short-term financial health.

Nature of Intangible Assets

Intangible assets possess no physical form but can be highly valuable, contrasting misconceptions about their worthlessness due to lack of physical substance.

Listing of Current Assets on Balance Sheet

On a classified balance sheet, current assets are typically organized in order of liquidity, meaning how quickly they can be converted to cash.

Evaluating Liquidity

The relationship between current assets and current liabilities is essential for assessing a company’s liquidity, indicating its ability to meet short-term obligations.

Identifying Property, Plant, and Equipment

Examples of property, plant, and equipment (PP&E) include machinery, buildings, and land; however, supplies do not qualify as they are not long-term assets.

Classification of Long-Term Liabilities

Current maturities of long-term debt are not classified as long-term liabilities, as they represent obligations due within the next year.

Key Information for Paying Obligations

The critical data needed to evaluate a company's capability to settle current obligations lies in the relationship between current assets and current liabilities.

Order of Assets on Classified Balance Sheet

Assets are generally listed in the following order on a classified balance sheet: current assets, long-term investments, property, plant, and equipment, and finally intangible assets for clarity and financial analysis.

Definition of Current Liabilities

Current liabilities are obligations due to be settled within the forthcoming year, highlighting a company’s short-term financial responsibilities and immediate cash outflows.

Description

Test your knowledge with these flashcards for Chapter 4.2 in Accounting. Each card provides a key concept related to balance sheets and asset classifications. Perfect for quick reviews and exam preparations.