Questions and Answers
What is the correct order of presentation in a classified balance sheet for the following current assets based on liquidity: inventories, cash, accounts receivable, prepaid insurance?
What classification does prepaid advertising fall under?
Current Assets
What classification does equipment fall under?
Property, Plant, and Equipment
What classification does trademarks fall under?
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What classification does salaries and wages payable fall under?
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What classification does income taxes payable fall under?
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What classification does retained earnings fall under?
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What classification does accounts receivable fall under?
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What classification does land held for future use fall under?
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What classification does patents fall under?
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What classification does bonds payable fall under?
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What classification does accumulated depreciation - equipment fall under?
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What classification does unearned sales revenue fall under?
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What classification does inventory fall under?
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What is Working Capital?
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What is the Current Ratio?
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What is the Debt to Assets Ratio?
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What is Free Cash Flow?
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GAAP is a set of rules and practices established by accounting standard-setting bodies to serve as a general guide for financial reporting purposes.
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The primary standard-setting body in the United States is the IRS.
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Study Notes
Current Assets Classification
- The correct order for presenting current assets on a classified balance sheet is: cash, accounts receivable, inventories, prepaid insurance.
- Prepaid advertising is classified as a current asset.
- Accounts receivable is also categorized as a current asset.
- Inventory is properly classified under current assets.
Property, Plant, and Equipment
- Equipment is classified as property, plant, and equipment.
- Accumulated depreciation on equipment falls under this category as it's associated with property, plant, and equipment.
Intangible Assets
- Trademarks are classified as intangible assets.
- Patents are also designated as intangible assets.
Liabilities Classification
- Salaries and wages payable are classified as current liabilities.
- Income taxes payable are classified similarly as current liabilities.
- Unearned sales revenue is categorized as current liabilities.
- Bonds payable are classified as long-term liabilities.
Stockholder Equity
- Retained earnings are accounted for under stockholder equity.
Long-Term Investments
- Land held for future use is classified as a long-term investment.
Key Financial Metrics
- Working Capital is calculated as current assets minus current liabilities.
- Current Ratio is derived by dividing current assets by current liabilities.
- Debt to Assets Ratio is determined by total liabilities divided by total assets.
- Free Cash Flow is computed as net operating profit after taxes minus net investments in operating capital.
GAAP Statement Evaluation
- Statement (a) about GAAP being a set of rules established for financial reporting is TRUE.
- Statement (b) regarding the primary standard-setting body in the U.S. being the IRS is FALSE; the primary body is the Financial Accounting Standards Board (FASB).
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Test your knowledge with these flashcards for Accounting Final Chapter 2. Cover essential concepts such as classified balance sheets and the order of liquidity among current assets. Perfect for quick reviews before your final exam.
