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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Classifying assets

Identify each of the following as (a) a current asset or (b) property, plant, and equipment:

1. Accounts Receivable

2. Building

3. Cash

4. Equipment

5. Prepaid Insurance

6. Supplies

To determine

Classification of Assets

Asset: Assets refer to the resources owned by the business, which are utilized in the course of the business to generate revenue.

In accounting, the assets are classified into two categories:

Current Assets: Current assets are the assets that are easily convertible to cash within a year of business operations. For example, cash and cash equals, Account receivables, Inventories, Prepaid Expenses.

Non-current Assets: It indicates to the assets otherwise known as fixed assets, that are held by the concern for more than one year and are not meant to be sold in the near future rather held to generate profits. It is classified into two categories:

  • Intangible Assets: It refers to the assets that have physical existence that can be seen, felt and touched. For example, property, furniture, and machinery.
  • Tangible Assets: It refers to the assets that does not have any physical existence and cannot be seen, felt or touched. For example, patents, copyrights, and goodwill.

To Identify: The following items as (a) current asset or (b) property, plant and equipment.

Explanation

Accounts Receivable – Current assets

Current assets refer to the assets of a business, which are kept in reserve for converting them into cash, in a short time period, or within twelve months.

As the accounts, receivable would be collected as cash once the amount given by the customer (within a short period). Therefore, it comes under the category of current assets.

Building – Property, plant, and equipment

Property, plant, and equipment, known as operating assets and it is used in the operational activities of the business. As the building is used for the operational activities of the business. Therefore, it comes under the category of property, plant, and equipment.

Cash – Current assets.

Current assets refer to the assets of a business, which are kept in reserve for converting them into cash, in a short time period, or within twelve months.

Cash is a current asset account. Therefore, it will appear in the current asset category of the balance sheet.

Equipment – Property, plant, and equipment

Property, plant, and equipment, known as operating assets and it is used in the operational activities of the business...

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