5.2 Classified Balance Sheet and GAAPS

Question 1

Account Form

Answer 1

Info side by side

Question 2

Report form

Answer 2

Info on top of each other

Question 4

Current asset

Answer 4

assets that will be converted into cash or used up within a year

Question 5

Fixed assets

Answer 5

longer than one year, like equipment and land (longest lasting first)

Question 6

Current Liability

Answer 6

short-term debts which will be paid within a year

Question 7

Long term liability

Answer 7

debts not due within a year

Question 8

Working Capital equals

Answer 8

Current Assets – Current Liabilities = Working Capital

Question 9

Working Capital should

Answer 9

always be greater than $0, because it shows your ability to pay back current debt

Question 10

GAAP – The Consistency Principle

Answer 10

Requires that companies use the same accounting methods and procedures from period to period.

Question 11

GAAP – The Materiality Principle

Answer 11

Requires accountants to include any information that could be considered material (important) to users of financial information.

Example → Several thousand dollars may not be material to an entity such as General Motors, but that same figure is quite material to a small, family-owned business.

Question 12

GAAP – The Full Disclosure Principle

Answer 12

Requires that all information needed for a full understanding of a company’s financial affairs must be included in the financial statements.