Chapter 4, Problem 1QC

Assets are listed on the balance sheet in the order of their

Learning Objective 1

1. purchase date.
2. adjustments.
3. liquidity.
4. balance.

To determine

Assets in Balance Sheet

A balance sheet is a list of assets and liabilities as on a given date of an entity. It consists of several assets and liabilities, grouped and presented together to ensure consistency and aid stakeholders.

Assets and Liabilities are listed in order of their liquidity. The most liquid assets are displayed first followed by current assets and finally fixed assets.

To explain:

The basis on which assets are displayed in the balance sheet.

Answer to Problem 1QC

Solution:

The correct answer is Option C.

Explanation of Solution

• In a balance sheet, assets are listed in the order of their liquidity. Liquidity means the ability of an asset to convert into cash.

• The most liquid assets are displayed first followed by current assets and finally fixed assets.

• Current assets are assets convertible to cash within a period of one year. Examples include accounts receivable, inventory, etc.

• Fixed assets are assets that have a longer life and duration of greater than one year. Examples include Property, Plant and Equipment.

• An example of the balance sheet with the assets displayed in order of their liquidity is given below for understanding purposes.

Conclusion

Hence, it can be seen that the assets are listed in the balance sheet in the order of their liquidity.