Accounting Chapter: Non-current Assets and Liabilities

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Questions and Answers

Which of the following best describes non-current liabilities?

Liabilities that can be converted into cash quickly.

Liabilities that include only accounts payable and notes payable.

Liabilities that are not expected to be settled within the next year. (correct)

Liabilities due within one year.

How is total owners' equity calculated?

Capital Stock + Current Liabilities

Retained Earnings + Total Liabilities

Total Assets + Total Liabilities

Total Assets - Total Liabilities (correct)

Which current asset is considered the most liquid?

Short-term Investments

Inventory

Accounts Receivable

Cash (correct)

Which of the following is classified as a non-current asset?

Fixtures & Equipment Signup and view all the answers

What component of owner's equity typically includes earnings retained in the business?

Retained Earnings Signup and view all the answers

Which of the following is a characteristic of current assets?

Assets that can quickly be liquidated. Signup and view all the answers

Which of the following best describes inventory on the balance sheet?

Goods available for sale or production. Signup and view all the answers

Which of the following liabilities would be classified as a current liability?

Accounts Payable Signup and view all the answers

What term is used to describe the systematic process of recognizing the cost of a non-current asset as an expense over its useful life?

Depreciation Signup and view all the answers

Which of the following is NOT considered a non-current asset?

Prescription drugs Signup and view all the answers

In calculating the annual depreciation expense, which factor is NOT required?

Market value of the asset Signup and view all the answers

Which of the following costs is included in the acquisition cost of a non-current asset?

Transportation costs Signup and view all the answers

Which of the following statements about non-current assets is true?

Non-current assets typically last longer than 1 year. Signup and view all the answers

What is the exception to depreciation among non-current assets?

Land Signup and view all the answers

Why do pharmacies purchase non-current assets?

To generate revenue from operational activities Signup and view all the answers

What costs are included when determining the acquisition cost of a fixed asset?

Renovation costs incurred before use Signup and view all the answers

What distinguishes current liabilities from non-current liabilities?

Current liabilities are settled within the current operating cycle. Signup and view all the answers

Which of the following is classified as a non-current asset?

Buildings Signup and view all the answers

What does accumulated depreciation represent on the balance sheet?

The portion of assets' value that has been used up. Signup and view all the answers

Which type of liability arises when goods or services are purchased on credit?

Accounts payable Signup and view all the answers

How is the net value of non-current assets calculated?

Acquisition cost less accumulated depreciation. Signup and view all the answers

Which of the following best describes accounts payable?

Debt from credit purchases. Signup and view all the answers

What is typically NOT included in non-current assets?

Cash in hand Signup and view all the answers

Which of the following liabilities typically arises from borrowing money?

Short-term notes payable Signup and view all the answers

Study Notes

Non-current Assets

These assets, are not sold, consumed, or converted to cash within a business's normal operating cycle (usually 1 year).
They are bought for use in the business, typically have a high cost, and are expected to last several years.
Examples include land, buildings, fixtures, cars, and computers.
Also referred to as fixed assets, fixtures, and equipment.
The balance sheet shows the acquisition cost, accumulated depreciation, and net value.

Liabilities

These are the business's debts.
They arise from purchasing goods or services on credit, or borrowing money to finance operations.
Classified as current or non-current.
Current liabilities are debts due during the current operating cycle.
Examples include accounts payable, short-term notes, accrued expenses, and the current portion of long-term debt.

Assets

Valuable resources owned or controlled by the business, acquired at a measurable cost.
Examples include cash, accounts receivable, delivery cars, and computers.
Categorized as current or non-current.
Current assets are sold, consumed, or converted to cash within the current operating cycle.
Listed on the balance sheet in order of liquidity (ease of converting to cash).
Common examples include cash, accounts receivable, inventories, prepaid expenses, and short-term investments.
Cash is the most liquid asset.

Depreciation

Non-current assets are purchased to generate revenue and are expected to last longer than 1 year.
Also known as fixed assets, operating assets, plant and equipment, and fixtures and equipment.
Examples include delivery cars, computers, unit dose carts, buildings, and fixtures.
Over time, non-current assets lose value due to use and wear.
This loss of value needs to be recognized as an expense over the asset's useful life.
This expense is called depreciation expense.
Depreciation systematically and rationally determines how much of a non-current asset's initial cost is recognized as an expense each year of its life.
Land is an exception as it may generate revenue but does not lose value over time.

Calculating Depreciation Data

Three amounts need to be known or estimated to calculate the annual depreciation expense.
- Acquisition cost: The amount the pharmacy paid for the asset, including transportation, taxes, setup costs, and any renovation or overhaul costs incurred before putting it into use.
- Useful life: The length of time the pharmacy plans to use the asset.

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Description

Test your understanding of non-current assets and liabilities in this comprehensive quiz. Dive into the definitions, classifications, and examples of these essential components of business accounting. Perfect for students studying finance or accounting principles.