Accounting Chapter: Non-current Assets and Liabilities
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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?

    <p>Fixtures &amp; Equipment</p> Signup and view all the answers

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

    <p>Retained Earnings</p> Signup and view all the answers

    Which of the following is a characteristic of current assets?

    <p>Assets that can quickly be liquidated.</p> Signup and view all the answers

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

    <p>Goods available for sale or production.</p> Signup and view all the answers

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

    <p>Accounts Payable</p> 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?

    <p>Depreciation</p> Signup and view all the answers

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

    <p>Prescription drugs</p> Signup and view all the answers

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

    <p>Market value of the asset</p> Signup and view all the answers

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

    <p>Transportation costs</p> Signup and view all the answers

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

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

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

    <p>Land</p> Signup and view all the answers

    Why do pharmacies purchase non-current assets?

    <p>To generate revenue from operational activities</p> Signup and view all the answers

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

    <p>Renovation costs incurred before use</p> Signup and view all the answers

    What distinguishes current liabilities from non-current liabilities?

    <p>Current liabilities are settled within the current operating cycle.</p> Signup and view all the answers

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

    <p>Buildings</p> Signup and view all the answers

    What does accumulated depreciation represent on the balance sheet?

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

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

    <p>Accounts payable</p> Signup and view all the answers

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

    <p>Acquisition cost less accumulated depreciation.</p> Signup and view all the answers

    Which of the following best describes accounts payable?

    <p>Debt from credit purchases.</p> Signup and view all the answers

    What is typically NOT included in non-current assets?

    <p>Cash in hand</p> Signup and view all the answers

    Which of the following liabilities typically arises from borrowing money?

    <p>Short-term notes payable</p> 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.

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