67 Questions
What is the purpose of having cash on hand in a firm?
To cover situations where cash expenditures exceed cash receipts
Which of the following is considered a current asset category on a firm's balance sheet?
Prepaid expenses
What is the definition of Accounts Receivable for a firm?
Amounts owed by customers who purchased on credit
What is the primary characteristic of Current Liabilities on a balance sheet?
Obligations due and payable within 12 months or less
Where would you find Liabilities that were incurred in the firm’s operations but not yet paid?
Accrued expenses
What term is used to describe debts created by borrowing from a bank or other lending source that must be repaid in 12 months or less?
Current liabilities
Who are the residual owners of a business according to the text?
Common stockholders
What is recorded as accrued wages according to the text?
Wages that will not be paid until the following week or month
Which type of debt is defined as all firm debts that are due and payable more than 12 months in the future?
Long-term debt
What do common stockholders receive in the event the firm is liquidated?
Income left over after all expenses are paid
How is a 25-year mortgage loan used to purchase land or buildings classified according to the text?
Long-term liability
What does the income statement report?
Cumulative results from operating the business over a period of time
Which equation defines the balance sheet?
Total Assets = Total Liabilities + Total Shareholder's Equity
What do total shareholders' equity and total liabilities sum up to?
Total Assets
What are examples of current assets?
Cash, accounts receivable, inventories
Why is it important for every firm to have some cash on hand at all times?
To avoid bankruptcy in case cash expenditures exceed cash receipts.
What does Gross Plant and Equipment represent on a firm's balance sheet?
The original cost of all plant and equipment owned by the firm.
Which category of assets includes prepaid expenses like insurance premiums?
Other current assets
What is the purpose of Accumulated Depreciation on a firm's balance sheet?
To show the total depreciation expense charged against prior year's revenues.
What do Current Liabilities represent on a firm's balance sheet?
Liabilities that are due and payable within 12 months or less.
How does Net Plant and Equipment differ from Gross Plant and Equipment?
Net Plant and Equipment includes accumulated depreciation, while Gross does not.
What type of debt would a 25-year mortgage loan used to purchase land or buildings fall under?
Long-Term Debt
In the event of firm liquidation, when do common stockholders receive only what is left over?
After paying all expenses
What is the primary characteristic of Common Stockholders' Equity on a balance sheet?
Owners receive income remaining after all expenses are paid
How are Short-term Notes defined in relation to firm debts?
Debts created by borrowing for short-term needs
What term describes debts owed by a firm that must be repaid more than 12 months in the future?
Long-Term Debt
What represents the residual ownership in a business for common stockholders?
Common Stockholders' Equity
What does total shareholders' equity represent in a firm's balance sheet?
The book value of shareholders' investment in the firm
Which of the following is NOT considered a current asset category on a firm's balance sheet?
Property, Plant, and Equipment
What is the key difference between the income statement and the balance sheet?
Balance sheet reflects financial position at a specific date, while income statement covers a period of time
Where are liabilities that were incurred in the firm’s operations but not yet paid typically recorded?
Current Liabilities
Accrued wages are recorded as a short-term liability on a balance sheet.
False
Long-term debt includes debts that are due and payable within 12 months.
False
Common stockholders receive whatever income is left over after the firm has paid all of its expenses.
True
In the event of firm liquidation, common stockholders can lose more money than they initially invested.
False
Total assets are equal to total liabilities plus total stockholders' equity on a balance sheet.
True
A 25-year mortgage loan used to purchase land or buildings is an example of a short-term liability.
False
Gross Plant and Equipment represents the current market value of all fixed assets owned by the firm.
False
Accumulated Depreciation is a liability recorded on the right-hand side of the balance sheet.
False
Prepaid expenses fall into the category of Other current assets on a firm's balance sheet.
True
Accounts Receivable refers to the amounts owed to suppliers by the firm for goods purchased on credit.
False
Current Liabilities are obligations that are due and payable within a period of 24 months or less.
False
Net Plant and Equipment represents the depreciated value of the firm’s plant and equipment on the balance sheet.
True
Total shareholders' equity is equal to the total assets minus the total liabilities on a firm's balance sheet.
True
Accumulated past earnings from a firm's operations are not included in the calculation of total shareholders' equity.
False
Current assets on a balance sheet include items that the firm expects to convert to cash within 24 months or less.
False
The balance sheet provides information about a firm's financial position on a specific date, while the income statement shows cumulative results over a period of time.
True
Total liabilities on a balance sheet represent the total amount of money owed by the firm to its shareholders.
False
Net plant and equipment on a balance sheet includes the original cost of the assets minus accumulated depreciation.
True
Accumulated past earnings from a firm's operations are included in the calculation of total shareholders' equity.
True
Long-term debt includes debts that are due and payable within 12 months.
False
Current assets on a balance sheet must be converted to cash in 12 months or less.
False
Gross Plant and Equipment represents the original cost of fixed assets minus accumulated depreciation.
False
Common stockholders can lose more money than they initially invested in the event of firm liquidation.
True
Accounts Receivable refers to the amounts owed by the firm to its creditors for goods purchased on credit.
False
Accumulated Depreciation represents the sum of all the depreciation expenses charged against the current year's revenues for fixed assets still owned by the firm.
False
Total assets on a balance sheet are always greater than total liabilities plus total shareholders' equity.
False
Prepaid expenses are not classified as current assets on a firm's balance sheet.
False
Net Plant and Equipment reflects the original acquisition prices of plant and equipment owned by the firm.
False
Current Liabilities consist of obligations due and payable within a period of 12 months or more.
False
Gross Plant and Equipment represents the depreciated value of all fixed assets owned by the firm.
False
Short-term notes are debts created by borrowing from a bank or other lending source that must be repaid in more than 12 months.
False
Common stockholders will receive everything that is left over after the firm has paid all its expenses, even in the event of liquidation.
False
Total assets on a balance sheet represent the total amount of money owed by the firm to its shareholders.
False
Current liabilities are obligations that are due and payable within a period of 24 months or less.
False
Gross Plant and Equipment on a balance sheet represents the original cost of assets without considering accumulated depreciation.
True
Total shareholders' equity is equal to total assets minus total liabilities on a firm's balance sheet.
False
Study Notes
- The balance sheet provides a snapshot of a firm's financial position on a specific date, while the income statement summarizes the business's performance over a period.
- The balance sheet equation is: Total Assets = Total Liabilities + Total Shareholder’s Equity.
- Total liabilities on the balance sheet represent the firm's debts to creditors, while total shareholder's equity is the difference between total assets and total liabilities.
- Shareholder's equity reflects the book value of their investment in the firm, comprising both initial investments and accumulated earnings from operations.
- Current assets on the balance sheet are assets expected to be converted to cash within 12 months, including cash, accounts receivable, inventories, and prepaid expenses.
- Gross plant and equipment represent the original acquisition prices of assets owned by the firm, while net plant and equipment are the depreciated values.
- Current liabilities include accounts payable, accrued expenses, and short-term notes, while long-term debt encompasses obligations due beyond 12 months.
- Common stockholders' equity represents the residual ownership in a business, receiving leftover income after expenses and having priority in case of liquidation.
Learn about the balance sheet, which presents the financial position of a firm at a specific date, and how it differs from the income statement. Explore the equation that defines the balance sheet in its simplest form.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
