chap2 - Chapter 2 Current assets are assets that a company...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 2 Current assets are assets that a company expects to convert to cash or use up within one year or its operating cycle, whichever is longer. a. Accounts receivable are current assets because the company will collect them and convert them to cash within one year. b. A supply is a current asset because the company expects to use them up in operations within one year. For most businesses this cycle takes less than a year, so they use a one-year cutoff. But, for some businesses, such as vineyards or airplane manufacturers, this period may be longer than a year. Except where noted, we will assume that companies use one year to determine whether an asset or liability is current or long-term. Common types of current assets are (1) cash, (2) short-term investments (such as short-term U.S. government securities), (3) receivables (notes receivable, accounts receivable, and interest receivable), (4) inventories, and (5) prepaid expenses (insurance and supplies). Companies list current assets in the order in which they expect to convert them into cash . Illustration  2-3  presents the current assets of  Southwest Airlines Co.   As explained later in the chapter, a company's current assets are important in assessing its short-term  debt-paying ability. LONG-TERM INVESTMENTS are often referred to simply as investments . Long-term investments are generally: (1) investments in stocks and bonds of other corporations that are held for more than one year, and (2) long-term assets such as land or buildings that a company is not currently using in its operating activities. In Illustration 2-2 Franklin Corporation reported total long-term investments of $7,200 on its balance sheet.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
PROPERTY, PLANT, AND EQUIPMENT is sometimes called fixed or plant assets . Property, plant, and equipment are assets with relatively long useful lives that a company is currently using in operating the business. This category includes land, buildings, machinery and equipment, delivery equipment, and furniture. Depreciation is the practice of allocating the cost of assets to a number of years. Companies do this by systematically assigning a portion of an asset's cost as an expense each year (rather than expensing the full purchase price in the year of purchase). The assets that the company depreciates are reported on the balance sheet at cost less accumulated depreciation. The accumulated depreciation account shows the total amount of depreciation that the company has expensed thus far in the asset's life.    INTANGIBLE ASSETS Many companies have assets that do not have physical substance yet often are very valuable. We call these assets intangible assets . One common intangible is goodwill. Others include patents, copyrights, and trademarks or trade names that give the company exclusive right of use for a specified period of time CURRENT LIABILITIES In the liabilities and stockholders' equity section of the balance sheet, the first grouping is current liabilities. Current liabilities
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This document was uploaded on 11/02/2011 for the course ACCOUNTING ac 201 at Montgomery.

Page1 / 18

chap2 - Chapter 2 Current assets are assets that a company...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online