Accounting CH 2
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Bonds Cash Banks or other financial company
6. owners’ Equity
Because a corporation is a separate legal entity, it can . . .
Tangible Physical Substance
Intangible Natural resource assets subject to depletion No Physical
Mineral deposits and timber
Substance
Classifying Long-Term Assets
for more than one year or the operating cycle,
whichever is longer, are classified as long-term
(noncurrent) investments. 1) Trading securities
2) Available-for-sale securities
Merchandise inventory includes all goods that a company owns and holds for sale, regardless of where the goods are located when inventory is counted.
Goods in Transit
Cash and Cash Equivalents
Checks Money Orders
Cash and Cash Equivalents
Certificates of Deposit
Bank Drafts
T-Bills
Temporary investments in marketable
securities include debt and equity securities
Items special
Goods on Consignment
3. Noncurrent Assets
• Long-term Investments • Property, plant, and equipment • Intangible Assets
Investment items that management expects to hold
Intangible
No Physical Substance
Classifying Long-Term Assets
Actively Used in Operations
Examples Land: not depreciable Expected to Benefit Future Periods Assets subject to depreciation Buildings and equipment Furniture and fixtures
Maturity = 1 year or less
Maturity > 1 year
Current Liabilities
Noncurrent Liabilities
5. Current Liabilities
Account Name Accounts Payable Accrued Liabilities Deferred Revenues Notes Payable Also Called Trade Accounts Payable Accrued Expenses Unearned Revenues N/A Definition Obligations to pay for goods and services used in the basic operating activities of the business. Obligations related to expenses that have been incurred, but will not be paid until the subsequent period. Obligations arising when cash is received prior to the related revenue being earned. Portions of debt that are due within the next year or operating cycle.
• Cash and cash equivalent • Temporary investments in marketable securities • Accounts and notes receivable • Inventories • Prepaid items
Cash includes cash on hand and readily
Maturity > 1 year
Current Liabilities
Long-term Liabilities
Sources for Long-Term Loans
Relatively small debt needs can be filled from single sources. Significant debt needs are often filled by issuing bonds to the public.
Debt - funds from creditors
Equity - funds from owners
Understanding the Business
Debt is considered riskier than equity.
Interest is a legal obligation. Creditors can force bankruptcy.
Intangible Assets
Noncurrent assets without physical substance. Often provide exclusive rights or privileges.
Intangible Assets
Useful life is often difficult to determine.
Liabilities Defined and Classified
Defined as probable debts or obligations of the entity that result from past transactions, which will be paid with assets or services.
that are classified as “trading securities” and
“available-for-sale securities.”
Receivables include accounts receivable and
notes receivable with short-term short maturity dates.
Inventories include goods held for resale in the normal course of business plus, in the case of a manufacturing company, raw materials and goods in process inventories.
Actively Used in Operations
Examples
Value represented by rights Expected to Benefit Future Periods that produce benefits Subject to amortization Patents Copyrights Tangible Can’t be amortized Physical Substance Trademarks Goodwill
available in checking and savings accounts.
Cash equivalents are risk-free securities, such
as money market funds and treasury bills that
will mature in three months or less from the date acquired by the holder.
5. Noncurn require the borrower to pledge specific assets as security for the long-term liability.
Maturity = 1 year or less
Goodwill Copyrights Technology Trademarks Franchises Usually acquired for operational use. Patents Licensing Rights
4. Other Assets
The Other Assets section occasionally is used to report miscellaneous assets that may not be readily classified within one of the previous sections.
3) Held-to-maturity debt securities
Classifying Long-Term Assets
Actively Used in Operations
Expected to Benefit Future Periods
6. owners’ Equity
Because a corporation is a separate legal entity, it can . . .
Tangible Physical Substance
Intangible Natural resource assets subject to depletion No Physical
Mineral deposits and timber
Substance
Classifying Long-Term Assets
for more than one year or the operating cycle,
whichever is longer, are classified as long-term
(noncurrent) investments. 1) Trading securities
2) Available-for-sale securities
Merchandise inventory includes all goods that a company owns and holds for sale, regardless of where the goods are located when inventory is counted.
Goods in Transit
Cash and Cash Equivalents
Checks Money Orders
Cash and Cash Equivalents
Certificates of Deposit
Bank Drafts
T-Bills
Temporary investments in marketable
securities include debt and equity securities
Items special
Goods on Consignment
3. Noncurrent Assets
• Long-term Investments • Property, plant, and equipment • Intangible Assets
Investment items that management expects to hold
Intangible
No Physical Substance
Classifying Long-Term Assets
Actively Used in Operations
Examples Land: not depreciable Expected to Benefit Future Periods Assets subject to depreciation Buildings and equipment Furniture and fixtures
Maturity = 1 year or less
Maturity > 1 year
Current Liabilities
Noncurrent Liabilities
5. Current Liabilities
Account Name Accounts Payable Accrued Liabilities Deferred Revenues Notes Payable Also Called Trade Accounts Payable Accrued Expenses Unearned Revenues N/A Definition Obligations to pay for goods and services used in the basic operating activities of the business. Obligations related to expenses that have been incurred, but will not be paid until the subsequent period. Obligations arising when cash is received prior to the related revenue being earned. Portions of debt that are due within the next year or operating cycle.
• Cash and cash equivalent • Temporary investments in marketable securities • Accounts and notes receivable • Inventories • Prepaid items
Cash includes cash on hand and readily
Maturity > 1 year
Current Liabilities
Long-term Liabilities
Sources for Long-Term Loans
Relatively small debt needs can be filled from single sources. Significant debt needs are often filled by issuing bonds to the public.
Debt - funds from creditors
Equity - funds from owners
Understanding the Business
Debt is considered riskier than equity.
Interest is a legal obligation. Creditors can force bankruptcy.
Intangible Assets
Noncurrent assets without physical substance. Often provide exclusive rights or privileges.
Intangible Assets
Useful life is often difficult to determine.
Liabilities Defined and Classified
Defined as probable debts or obligations of the entity that result from past transactions, which will be paid with assets or services.
that are classified as “trading securities” and
“available-for-sale securities.”
Receivables include accounts receivable and
notes receivable with short-term short maturity dates.
Inventories include goods held for resale in the normal course of business plus, in the case of a manufacturing company, raw materials and goods in process inventories.
Actively Used in Operations
Examples
Value represented by rights Expected to Benefit Future Periods that produce benefits Subject to amortization Patents Copyrights Tangible Can’t be amortized Physical Substance Trademarks Goodwill
available in checking and savings accounts.
Cash equivalents are risk-free securities, such
as money market funds and treasury bills that
will mature in three months or less from the date acquired by the holder.
5. Noncurn require the borrower to pledge specific assets as security for the long-term liability.
Maturity = 1 year or less
Goodwill Copyrights Technology Trademarks Franchises Usually acquired for operational use. Patents Licensing Rights
4. Other Assets
The Other Assets section occasionally is used to report miscellaneous assets that may not be readily classified within one of the previous sections.
3) Held-to-maturity debt securities
Classifying Long-Term Assets
Actively Used in Operations
Expected to Benefit Future Periods
