The Classification Case

The classification of current and non-current liabilities in the balance sheet is allocated in both areas providing several financial analyses because Current liabilities are obligations or debts that a company must pay within a period of less than one year such as the payment of debts to suppliers.

The non-current liabilities, meanwhile, represent the debts that the signature must pay in a period equal to or greater than a year. Typically, this type of liabilities includes the bank debt and the debts with owners of bonds.

Investors are looking for companies that have a manageable debt and reasonable. When debt levels begin to fall, this is a good sign.

On the contrary, a signature with a high level of debt in comparison with their assets should be examined with great care because a high debt in comparison to the cash flow needed to pay the interests the debts, including interest, is the way almost certain for that a company go to the bankruptcy.

One way to analyze whether the debts of a company are overcoming their assets is through an indicator known as immediate liquidity ratio:

Ratio of immediate liquidity = (current assets-inventories) /current liabilities. If this ratio is greater than 1, this means that the company has enough cash and liquid assets to cover the obligations of the short-term debts.

A business that has one and only one individual owner is referred as a sole proprietorship or Owner's equity. The owner is responsible for the business actions and can be personally liable for business debts. The owner's equity is also considered as to capital in which investments and profits retained fall under this category. (

"Mathematically, Owner's equity represents the owner's investment in the business minus the owner's draws or withdrawals from the business plus the net income (or minus the net loss) since the business began." (AccountingCoach, 2012).

Stockholder's equity is based on "shares" accounts to show all the investments contributed by its owners. In addition, a corporation is required by law to distinguish between the company's investors (contributed capital by its owners) and the company's earnings over the years.

"The stockholders' equity section of a corporation's balance sheet is:

 Paid-in Capital

 Retained Earnings

 Treasury Stock

The stockholders' equity section of a corporation's balance sheet is: "

STOCKHOLDERS' EQUITY

Paid-in Capital

Preferred Stock

Common