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Chapter 2.3

chapter 2.3

Financial Accounting
Course Code
Liang Chen

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Chapter 2
Assets are the resources that a company owns that will provide future economic benefits. Assets can
include resources whose benefits will be realized in a year (current), or more than a year (noncurrent).
Noncurrent is divided into long-term investments, PPE, and intangible assets. Other assets that are
reported separately include noncurrent receivables, future income tax assets, and property held for sale.
Current assets are expected to be sold or converted into cash within a year. Common types of current
assets include cash, short-term investments, receivables, inventory, supplies, and prepaid expenses.
Long-term investments are generally multi-year investments in debt (notes, bonds) and equity (shares)
of other corporations.
Property, Plant, and Equipment t are tangible assets with relatively long useful lives that are currently
being used in operating business. This category includes land, buildings, equipment, and furniture. They
are usually listed in the balance sheet in their order of permanency. Because PPE benefit future periods,
their cost is matched to revenues over their estimated useful lives through a process called depreciation.
Assets that are depreciated should be reported on the balance sheet at cost less their accumulated
depreciation. Accumulated depreciation shows the amount of depreciation taken so far over the life of
the asset (contra asset). The difference between cost and accumulated depreciation is referred to as
carrying amount.
Intangible assets are noncurrent assets that do not have physical substance and that represent a
privilege or a right granted to, or held by, a company. These include goodwill, patents, copyrights,
trademarks, trade names, and licenses. Intangibles are divided into two groups: definite and indefinite
These are obligations that result from past transactions.
Current liabilities are obligations that are to be paid in the coming year from current assets, or through
the creation of other current liabilities (accounts payable, accrued liabilities). Current liabilities are listed
in order of liquidity. Current assets are expected to be used to pay current liabilities.
Long-term liabilities are obligations that are expected to be paid after one year (bonds payable,
Shareholders[ equity is divided into two: share capital and retained earnings.
The total amount of shares, both preferred and common shares are called share capital.
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