Current Assets Properly Listed

Current Assets Properly Listed

Generally accepted accounting principles (GAAP) specify the format of a balance sheet. The current assets are listed in proper order on Verizon's balance sheet (Verizons Communication 2010 Annual Report, 2010). Accounting analysis takes place within a framework called the basic accounting equation. The equation is defined as assets equal liabilities plus owner's equity. Simply stated, the economic resources of a company are equal to the claims on those resources. The order of the accounts on the balance sheet simplifies reading the report by financial statement users because it lists the resources and what a company owes separately. This order facilitates analyzing a company's performance and financial position.

Balance sheets group assets and liabilities separately because it is easier to read a financial statement that groups accounts together with similar economic characteristics. Assets form their own group on the balance sheet and are listed as current or non-current. The total value of assets is summarized and labeled at the end of the asset section.

How assets are classified

Current assets are listed first on the balance sheet. Assets defined as current assets are converted easily into cash or used by the company within a year. Examples of current assets and listed in this order are cash, short-term investments, net receivables, inventory, and other current assets (Hanson & Hamre, 1996).

Non-current assets or fixed assets are listed next. These assets include property, plant, and equipment. They are long-lived and used in the production of goods or services for the company. They are assets used in the operation of the business and are not assets held for sale, such as inventory.

Various other assets are listed next and typically include intangible assets such as patents and goodwill. Other assets that are not large in relation to total assets are grouped under one classification, "other assets."

Every company has its own system for numbering accounts but the balance sheet is a more useful statement for comparison and financial analysis if the asset and liability groups are classified separately.

Cash equivalent

Cash and cash equivalents are used together by many companies when reporting cash. While cash, in its obvious state, consists of paper money, coins, checks, and money orders, cash equivalents are, according to Kimmel, Weygandt, and Kieso (2011), short-term, highly liquid investments that are readily convertible to a specific amount of cash, and so close to maturity that their market value is barely affected by changes in interest. Cash equivalents are included as one of the three main assets along with stocks and bonds. Some examples of cash equivalents, according to Investopedia.com (2011) include U.S. government Treasury bills, certificate of deposits, bankers'