Tangible and Intangible Assets Quiz

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Questions and Answers

Which of the following accurately describes assets?

Assets are obligations that require settlements.

Assets only include non-current items.

Assets can only include physical items.

Assets provide future economic benefits. (correct)

Which of the following is considered a liability?

Accounts payable that require payment to suppliers. (correct)

Cash held in the bank.

Inventory that is ready for sale.

Patents held by the company.

What distinguishes current assets from non-current assets?

Non-current assets can be liquidated within a year.

Current assets can be converted into cash within one year. (correct)

Current assets are defined by their physical existence.

Non-current assets include only tangible items.

How is equity defined in accounting terms?

Assets minus liabilities. Signup and view all the answers

Which of the following best describes revenue?

Revenue arises from a company’s ordinary business activities. Signup and view all the answers

Which statement accurately reflects the nature of liabilities?

Liabilities arise from past events and require future resource outflows. Signup and view all the answers

Which of the following represents an expense?

Losses from selling an asset. Signup and view all the answers

Which of the following accounts would appear on an income statement?

Service revenue Signup and view all the answers

What characterizes current assets in financial reporting?

They include cash and items expected to be consumed or realized within twelve months. Signup and view all the answers

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

Building Signup and view all the answers

What does the term 'accumulated depreciation' refer to?

The total depreciation expenses allocated to an asset over its useful life. Signup and view all the answers

Which account would not be classified as a current asset?

Land Signup and view all the answers

Which of the following is true about prepaid expenses?

They can be classified as current or non-current assets depending on the duration. Signup and view all the answers

Which of the following best describes notes receivable?

Receivables supported by written promissory notes. Signup and view all the answers

Which account is specifically intended for potential losses from customer defaults?

Allowance for bad debts Signup and view all the answers

What classification do items like desks and computers fall under?

Equipment Signup and view all the answers

What is the purpose of the allowance for doubtful accounts?

To estimate potential losses from uncollectible accounts receivable. Signup and view all the answers

What is classified as an intangible asset?

Trademark Signup and view all the answers

Which of the following liabilities is considered a current liability?

Accounts payable Signup and view all the answers

How is owner's capital increased?

By contributions from owners Signup and view all the answers

Which of the following represents a non-current liability?

Bonds payable Signup and view all the answers

What is a characteristic of accrued expenses?

They are expected to be paid in the next accounting period Signup and view all the answers

What happens to the owner's drawings at the end of the accounting period?

They are closed to the owner's capital account Signup and view all the answers

What type of liability is unearned revenue categorized as?

Current liability Signup and view all the answers

Which of the following is NOT a characteristic of liabilities?

They must be recognized as current if due in 30 days. Signup and view all the answers

Study Notes

Tangible Assets

Tangible assets are physical assets such as land, buildings, and equipment.
Collectively, land, building, and equipment are referred to as “Property, plant, and equipment,” “Capital assets,” or “Fixed assets.”

Intangible Assets

Intangible assets are long-term assets with no physical substance.
Examples of intangible assets include goodwill, stock investments, patents, websites, trademarks, and copyrights.

Current Liabilities

Current liabilities are obligations due within 12 months after the end of the balance sheet date.
Examples of current liabilities include:
- Accounts payable: Obligations supported by oral or informal promises to pay by the debtor.
- Accrued expenses: Expenses incurred but not paid until the next accounting period.

Non-current Liabilities

Non-current liabilities are obligations not due within 12 months after the end of the accounting period or the company's normal operating cycle, whichever is shorter.
Examples of non-current liabilities include:
- Notes payable: Obligations supported by written or formal promises to pay by the debtor in the form of promissory notes.
- Bonds payable: Contracts to pay bondholders the face amount plus interest on the maturity date.
Unearned revenue is a non-current liability that arises when a company sells goods or services to a customer who pays but does not receive the goods or services.

Equity

Equity represents the owner's interest in the company's assets.
Calculated by subtracting liabilities from assets.
The Owner's Capital account is:
- Increased by investments or contributions by the owners.
- Increased by income or profit earned by the business.
- Decreased by withdrawals or distributions to the owners.
- Decreased by expenses or losses incurred by the business.

Owner's Drawings

The Owner's Drawings account is used to record the temporary withdrawals of the owner during the period.
At the end of the accounting period, any balance in this account is closed to the Owner's Capital account.

Assets

Assets are resources owned or controlled by a company that result from past events and can provide future economic benefits.
Assets are used to generate future revenues or maintain operations.

Current Assets

Assets held for trading, expected to be realized or consumed within 12 months after the end of the period or its normal operating cycle (whichever is longer), or assets that are cash.
Examples of current assets include:
- Cash: Money or its equivalent that is readily available for unrestricted uses.
- Accounts receivable: Receivables supported by oral or informal promises to pay.
- Allowance for bad debts: The aggregate of estimated losses from uncollectible accounts receivable.
- Notes receivable: Receivables supported by written or formal promises to pay in the form of promissory notes.
- Inventory: Goods held for sale by a business.
- Prepaid supplies: Unused office and other supplies.
- Prepaid rent: Rent paid in advance.
- Prepaid insurance: Cost of insurance paid in advance.

Non-current Assets

Assets that do not meet the criteria to be classified as current, therefore long-term in nature.
Examples of non-current assets include:
- Land: Land on which the building of the business has been constructed or a vacant lot which is to be used as a future plant site. (Not depreciable)
- Building: Structure owned by a business for use in its operations.
- Accumulated depreciation - building: The total amount of depreciation expenses recognized since the building was acquired and made available for use.
- Equipment: Includes machineries, transportation equipment, office equipment, computer equipment, and furniture and fixtures.
- Accumulated depreciation - equipment: The total amount of depreciation expenses recognized since the equipment was acquired and made available for use.

Income

Increases in economic benefits during the period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to investments by the business owners.
Includes revenue and gains.
- Revenue arises in the course of the ordinary activities of a business, such as sales and service fees.
- Gains represent other items that meet the definition of income and may or may not arise in the course of ordinary activities of an entity.

Expenses

Decreases in economic benefits during the period in the form of outflow or depletions of assets or increases of liabilities that result in decreases in equity, other than those relating to distributions to the business owners.
Includes expenses and losses.
- Expenses arise in the course of the ordinary activities of a business.
- Losses represent other items that meet the definition of expenses and may or may not arise in the course of the ordinary activities of the entity.

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Description

Test your knowledge on tangible and intangible assets, including their definitions and examples. Additionally, learn about current and non-current liabilities, and how they impact a balance sheet. This quiz covers key concepts essential for understanding financial statements.