CH2 Outline - Updated - Chapter 2 A Further Look at...

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Chapter 2 – A Further Look at Financial Statements Identify the Sections of a Classified Balance Sheet Classified Balance Sheet – a company often groups similar assets and similar liabilities together as they have similar economic characteristics o Helps users determine: Whether the company has enough assets to pay its debts The claims of short-term and long-term creditors on the company’s total assets Current Assets o Assets that are expected to be converted to cash or used in the business within one year o Examples : cash, short-term investments (marketable securities), receivables, inventories, prepaid expenses, supplies o On the balance sheet, current assets are listed in order of liquidity Long-term Investments o Assets that can be converted into cash, but whose conversion is not expected within one year o Assets not intended for use within the business. o Examples are investments of stocks and bonds of other corporations Property, Plant, & Equipment o Assets with relatively long useful lives. o Assets used in operating the business o Examples include land, buildings, machinery, delivery equipment, and furniture and fixtures. o Recorded at cost and then depreciated over the asset’s useful life (except land) Depreciation - the practice of allocating the cost of assets to a number of years Depreciation Expense – the amount of the allocation for one accounting period Accumulated Depreciation - the total amount of depreciation that has been expensed since the asset was placed in service On balance sheet, reported at COST less ACCUMULATED DEPR . Intangible Assets o Noncurrent o Have no physical substance o Examples: patents, copyrights, trademarks, tradenames
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Current Liabilities o Obligations that are to be paid within the coming year o Common examples are notes payable, accounts payable, wages payable, bank
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