{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

pg_0021 - Classified Balance Sheet C4 Explain and prepare a...

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Classified Balance Sheet C4 Explain and prepare a classified balance sheet. Video}. I Our discussion to this point has been limited to unclassified financial statements. This section describes a classified balance sheet. Chapter 4 describes a classified income statement. An unclassified balance sheet is one whose items are broadly grouped into assets, liabilities, and equity. One example is FastForward’s balance sheet in Exhibit 3.14. A classified balance sheet organizes assets and liabilities into important subgroups that provide more information to decision makers. Classification Structure A classified balance sheet has no required layout, but it usually contains the categories in Exhibit 3.20. One of the more important classifications is the separation between current and noncurrent items for both assets and liabilities. Current items are those expected to come due (either collected or owed) within one year or the company's operating cycle, whichever is longer. The omating gycle is the time span from when cash is riser!T to acquire goods and services until cash is r'ec'eiir‘etiT from the sale of goods and services. “Operating” refers to company operations and “cycle” refers to the circular flow of cash used for company inputs and then cash received fi'om its outputs. The length of a company’s operating cycle depends on its activities. For a service company, the operating cycle is the time span between (1) paying employees who perform the services and (2) receiving cash fiom customers. For a merchandiser selling products, the operating cycle is the time span between (1) paying suppliers for merchandise and (2) receiving cash from customers. EXHIBIT 3.20: Typical Categories in a Classified Balance Sheet Assets Liabi 'es and Equity Current assets Current liabilities Noncurrent assets Noncurnent liabilities Long-term investments Equity Plant assets Intangible assets Point: Current is also called short term, and noncurrent is also called long term. . . 9 Most operating cycles are less than one year. This means most companies use a one—year period in deciding which assets and liabilities are current. A few companies have an operating cycle longer than one year. For instance, producers of certain beverages (wine) and products (ginseng) that require aging for several years have operating cycles longer than one year. A balance sheet lists current assets before noncurrent assets and current liabilities before noncurrent liabilities. This consistency in presentation allows users to quickly identify current assets that are most easily converted to cash and current liabilities that are shortly coming due. Items in current assets and current liabilities are listed in the order of how quickly they will be converted to, or paid in, cash. Classification Categories This section describes the most common categories in a classified balance sheet. The balance sheet for Snowboarding Components in Exhibit 3.21 shows the typical categories. Its assets are classified as either current or noncurrent. Its noncurrent assets include three main categories: loneeterm investments. plant assets. and intangible assets. Its liabilities are classified as ...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern