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Questions and Answers
Which of the following best describes non-current liabilities?
How is total owners' equity calculated?
Which current asset is considered the most liquid?
Which of the following is classified as a non-current asset?
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What component of owner's equity typically includes earnings retained in the business?
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Which of the following is a characteristic of current assets?
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Which of the following best describes inventory on the balance sheet?
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Which of the following liabilities would be classified as a current liability?
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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?
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Which of the following is NOT considered a non-current asset?
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In calculating the annual depreciation expense, which factor is NOT required?
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Which of the following costs is included in the acquisition cost of a non-current asset?
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Which of the following statements about non-current assets is true?
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What is the exception to depreciation among non-current assets?
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Why do pharmacies purchase non-current assets?
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What costs are included when determining the acquisition cost of a fixed asset?
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What distinguishes current liabilities from non-current liabilities?
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Which of the following is classified as a non-current asset?
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What does accumulated depreciation represent on the balance sheet?
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Which type of liability arises when goods or services are purchased on credit?
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How is the net value of non-current assets calculated?
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Which of the following best describes accounts payable?
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What is typically NOT included in non-current assets?
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Which of the following liabilities typically arises from borrowing money?
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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.