Classification of Assets

Current Assets
The following assets are classified as current assets, because they are expected to be converted into cash within a year or normal operating cycle, if the operating cycle is longer than a year. Examples of current assets include cash, short-term marketable securities, accounts receivable, notes receivable due within a year, loans due within a year, inventory and prepaid expenses.

Investments
Investments and loans that are expected to be converted into cash within a year are classified as current assets. If the intention of the entity is to keep the investments and loans for more than a year, such investments and loans are classified as noncurrent assets.

Property, Plant and Equipment (PP&E)
Property, plant and equipment include land, buildings, machinery, vehicles and equipment. These assets are expected to be used to generate revenues for more than a year. Depreciation is the process of allocating the cost of property, plant and equipment over the life of the asset.

Intangible Assets
Intangible assets include the assets that do not have physical substance, such as goodwill, patents, copyrights and trademarks.

Review Questions
1. How are assets classified in a classified balance sheet?
Current assets, property, plant and equipment (PP&E), intangible assets, long-term investment and other assets
2. How is a current asset defined?
A current asset is an asset that is expected to be converted into cash within a year or normal operating cycle if the operating cycle is longer than a year.
3. What are the examples of current assets?
Cash and cash equivalents, short-term marketable securities, accounts receivable, notes receivable due within a year, inventory, prepaid expenses
4. What are the examples of Property, Plant and Equipment?
Land, buildings, equipment, machinery, furniture and fixtures
5. What are the examples of intangible assets?
Goodwill, patents, trademarks, copyrights

 

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