Chapter 2: A Further Look Into
Financial Statements
2.1 - The Classified Statement of Financial
Position
A classified statement of financial position groups similar types of assets and similar types of
liabilities together.
Assets
● Resources a company owns or controls that provide future economic benefits by
generating cash flows.
○ Current Assets: Expected to be converted to cash, sold, or used up within
one year.
○ Non-Current Assets: Benefits will be realized after more than one year.
, Current Assets
● Expected to be converted to cash, sold, or used up within one year or operating
cycle.
● Operating Cycle: Time between paying for products/services and receiving cash
from customers. Usually less than a year but can be longer for certain industries.
● Listed by liquidity (how easily they turn into cash):
○ Cash: Money in hand or deposited.
○ Trading Investments: Investments in securities intended to be sold within a
year.
○ Accounts Receivable: Money owed to the company by customers.
○ Notes Receivable: Money owed to the company, usually with interest.
○ Inventory: Goods held for sale or production.
○ Supplies: Consumable items like office and cleaning supplies.
○ Prepaid Ex penses: Costs like rent or insurance paid in advance.
Non-Current Assets
Usually Not Titled “Non-Current Assets” in the Statement of Financial Position, but titled
as “Current Assets”, “Long-Term Investments”, “Property, Plant and Equipment”
● Long-term Investments: Investments held for many years to earn income.
○ Debt Securities: loans, notes, bonds, mortgages
○ Equity Securities: shares of other companies
● Property, Plant, and Equipment: Tangible assets with long useful lives (e.g., land,
buildings, machinery, equipment).
● Depreciation: Spreading the cost of these assets over their useful lives (except land,
which is not depreciated).
○ Carrying Amount: assets that are depreciated
● Intangible Assets: Assets with no physical substance (e.g., patents, copyrights).
○ Amortization: Similar to depreciation, but for intangible assets with a limited
life.
○ Goodwill: Excess amount paid when buying another company, representing
things like reputation and employee quality.
Financial Statements
2.1 - The Classified Statement of Financial
Position
A classified statement of financial position groups similar types of assets and similar types of
liabilities together.
Assets
● Resources a company owns or controls that provide future economic benefits by
generating cash flows.
○ Current Assets: Expected to be converted to cash, sold, or used up within
one year.
○ Non-Current Assets: Benefits will be realized after more than one year.
, Current Assets
● Expected to be converted to cash, sold, or used up within one year or operating
cycle.
● Operating Cycle: Time between paying for products/services and receiving cash
from customers. Usually less than a year but can be longer for certain industries.
● Listed by liquidity (how easily they turn into cash):
○ Cash: Money in hand or deposited.
○ Trading Investments: Investments in securities intended to be sold within a
year.
○ Accounts Receivable: Money owed to the company by customers.
○ Notes Receivable: Money owed to the company, usually with interest.
○ Inventory: Goods held for sale or production.
○ Supplies: Consumable items like office and cleaning supplies.
○ Prepaid Ex penses: Costs like rent or insurance paid in advance.
Non-Current Assets
Usually Not Titled “Non-Current Assets” in the Statement of Financial Position, but titled
as “Current Assets”, “Long-Term Investments”, “Property, Plant and Equipment”
● Long-term Investments: Investments held for many years to earn income.
○ Debt Securities: loans, notes, bonds, mortgages
○ Equity Securities: shares of other companies
● Property, Plant, and Equipment: Tangible assets with long useful lives (e.g., land,
buildings, machinery, equipment).
● Depreciation: Spreading the cost of these assets over their useful lives (except land,
which is not depreciated).
○ Carrying Amount: assets that are depreciated
● Intangible Assets: Assets with no physical substance (e.g., patents, copyrights).
○ Amortization: Similar to depreciation, but for intangible assets with a limited
life.
○ Goodwill: Excess amount paid when buying another company, representing
things like reputation and employee quality.
