Chapter 2

Current Assets

• Assets that are expected to be converted to cash or used in the business within a short period of time, usually one year. Examples: cash, accounts receivables and inventory. • On the Balance Sheet current assets are listed in the order in which they are expected to be converted into cash (based on how "liquid" they are).

Classified Balance Sheet

A classified balance sheet generally contains the following standard classifications: four types of assets; two types of liabilities; and at least two types of stockholders' equity

Common Stock

A report of stockholders equity

Long-Term Investments,

• Investments or other assets expected to be kept for more than one year and not expected to be converted to cash during the next year. • Examples are investments in stocks of other corporations and assets, such as land, not currently being used by the business but held for future use. • On the Balance Sheet long-term investments are usually listed in order magnitude or size (largest first).

Current Liabilities

• Obligations that are due to be paid within the coming year or twelve months. • Common examples are notes payable, accounts payable and wages payable • Note: the current portion of a long-term note payable that is due during the next year is a current liability • On the Balance Sheet Current Liabilities are listed in the following order: 1) first- notes payable, 2) second- accounts payable, 3) third- any other current liabilities are listed in order of magnitude or size.

Long-Term Investments

• Obligations that are expected to be paid after one year. • Liabilities in this category include Bonds Payable and Long-Term Notes Payable • Note: the current portion of a bond payable or a long-term note payable is shown as a current liability • On the Balance Sheet Long-Term Liabilities are listed in order of magnitude or size.

Retained Earnings

• Retained earnings are the accumulated net income (or profits) retained (or kept) for use in the business. • Net income increases retained earnings. • A (net loss) reduces retained earnings. • Retained earnings can be thought of as the reinvestment of profits into the company so the company can grow larger. • Dividends are payments from the company to the stockholders. • Dividends give the stockholders a return on their investment. • Dividends reduce retained earnings

Intangible Assets

• Sometimes called "other assets". • Intangible Assets are non-current assets that have no physical substance but have future value to the company. • Common examples are patents, copyrights and trademarks • Other examples: Goodwill, franchises and licenses. • On the Balance Sheet Intangible Assets are listed in order of magnitude or size.

Property, Plant & Equipment

• Sometimes called PP&E or "tangible assets" or "fixed assets" or "plant assets". • These are assets used in operating the business with relatively long useful lives. • Examples include land, buildings, equipment, vehicles and furniture. • On the Balance Sheet PP&E are listed in the order of permanency (or how long they will last).