The asset section of a classified balance sheet usually includes:
A) Current assets, investments, plant assets, and intangible assets.
B) Current assets, long-term assets, revenues, intangible assets.
C) Current assets, investments, plant assets, and equity
D) Current liabilities, investments, plant assets, and intangible assets
E) Current assets, liabilities, plant assets, and intangible assets.
The correct answer and explanation is :
The correct answer is A) Current assets, investments, plant assets, and intangible assets.
Explanation:
A classified balance sheet is a financial statement that separates assets and liabilities into different categories or classifications to provide a clearer picture of a company’s financial position. This classification is important because it helps users, such as investors, creditors, and analysts, better understand the company’s financial health and liquidity. In the context of assets, the balance sheet is typically broken down into the following major categories:
- Current Assets:
These are assets that are expected to be converted into cash, sold, or used up within one year or within the company’s operating cycle, whichever is longer. Common examples include cash, accounts receivable, inventory, and prepaid expenses. - Investments:
These are long-term assets that are not intended for immediate use in the company’s operations but are held for investment purposes. Investments can include stocks, bonds, and other financial instruments that are intended to generate income over time. - Plant Assets (also known as Property, Plant, and Equipment or PP&E):
These are tangible, long-term assets that are used in the operations of the business. They include land, buildings, machinery, equipment, and vehicles. These assets are vital for the day-to-day functioning of the company and typically have a useful life longer than one year. - Intangible Assets:
These are non-physical assets that have value because of the rights, privileges, or advantages they confer. Examples include patents, trademarks, copyrights, goodwill, and brand names. Intangible assets do not have physical substance but are often crucial to a company’s competitive advantage.
In summary, the asset section of a classified balance sheet typically includes current assets, investments, plant assets, and intangible assets, which is why answer A is the correct one. This classification helps financial statement users distinguish between assets that are short-term (current) and those that are long-term (non-current), aiding in evaluating the company’s liquidity and financial stability.