Chapter 4 The Classified Balance Sheet and Related Disclosures

Auditor's Report

A report prepared by an independent outside auditor stating an opinion as to the fairness of the presentation of the financial position and results of operations and their conformance with generally accepted accounting principles.

Order of Liquidity

Assets on the balance sheet are listed in order of how soon they are expected to be turned into cash or used up.

Non-current Assets

Assets that will be useful for more than one year; they are sometimes referred to as long-lived assets.

Non-Current or Long-Term Liabilities

Borrowings that do not require repayment for more than one year.

Current Assets

Current assets are those resources that the entity expects to convert to cash, or to consume during the next year or within the operating cycle of the entity, whichever is longer.

Classified Income Statement

Divides both revenues and expenses into operating and non-operating items. The statement also separates operating expenses into selling and administrative expenses. Also called the multiple-step income statement.

Maturity

Liabilities on the balance sheet listed in order of their due dates.

Equity

Net assets of a business. Two major elements of equity are common stock and retained earnings.

Current Liabilities

Obligations that must be paid within the next 12 months or within the entity's next operating cycle, whichever is longer.

Classified Balance Sheet

Organizes the asset and liability accounts into categories: either current or non-current. Another common term for non-current is long-term.

Notes to Financial Statements

Provide relevant details that are not included in the body of the financial statements.

Internal Control

The procedures or policies put in place by management to safeguard assets, increase efficiency, promote accountability, and prevent fraudulent behavior.