Which Of The Following Statements About The Organization

Which Of The Following Statements About The Organization Of The Bala

Which Of The Following Statements About The Organization Of The Bala. Which of the following statements about the organization of the balance sheet is most correct? a. The balance sheet has upper and lower (or left and right) sections. b. Assets are divided into current and long-term categories. c. Assets are divided into equity and non-equity categories. d. Both a. and b. above are correct. e. Both a. and c. above are correct.

2. True or False: Like the income statement, the balance sheet reports the assets and liabilities of an organization over some period of time. a. True b. False

3. Which of the following equations best describes the accounting identity? a. Long-term assets = Short-term assets + Equity. b. Assets = Liabilities + Equity. c. Total claims = Liabilities + Equity. d. Short-term assets = Cash + Receivables. e. Long-term liabilities = Notes + Bonds.

4. Which of the following statements about the balance sheet is most correct? a. The lower (right-hand) section reports cash and other assets. b. The balance sheet reports on a business's operations. c. The asset side of the balance sheet is listed in decreasing order of maturity (i.e., longer maturity assets are listed first). d. The upper (left-hand) section reports liabilities and equity. e. None of the above statements are correct.

5. Assume that the value of diagnostic equipment suddenly falls because of technological obsolescence. How is the balance sheet adjusted to preserve the accounting identity? a. Short-term liabilities are reduced. b. Long-term liabilities are reduced. c. Equity is reduced. d. Inventories are reduced. e. Cash is reduced.

6. Which of the following statements concerning accumulated depreciation is most correct? a. Accumulated depreciation is an income statement item. b. There is no relationship between depreciation expense on the income statement and accumulated depreciation on the balance sheet. c. Net fixed assets is equal to gross fixed assets plus accumulated depreciation. d. Accumulated depreciation appears on the balance sheet under the category "Other Assets." e. None of the above statements is correct.

7. Which of the following statements concerning the statement of cash flows is most correct? a. Like the balance sheet, the statement of cash flows is as of a single point in time. b. The statement of cash flows uses information from both the income statement and the balance sheet. c. The statement of cash flows has five major sections. d. The most important line on the statement of cash flows is the "bottom line," the net increase (decrease) in cash. e. None of the above statements is correct.

8. Assume that a business's balance sheet reports total assets of $500,000 and total liabilities of $300,000. Now assume that $20,000 of net fixed assets (net plant and equipment) are written off due to technological obsolescence. All else the same, what is the total equity of the business after the write-off? a. $200,000 b. $190,000 c. $180,000 d. $170,000 e. There is insufficient information given to answer this question.

9. Consider the following balance sheet: Cash $70,000; Accounts payable $30,000; Accounts receivable $30,000; Long-term debt $20,000; Inventories $50,000; Common stock $200,000; Net fixed assets $350,000; Retained earnings $250,000. Total assets $500,000; Total claims $500,000. Which of the following statements is most correct? a. The business is not-for-profit. b. The business, in the aggregate over time, has been profitable. c. The business is probably using too much debt financing. d. The business has $450,000 in its equity accounts (common stock and retained earnings); thus, it has this much money available to spend on new facilities. e. The business has a short-term bank loan outstanding.

10. Consider the same balance sheet as above. Assume the business uses $10,000 of its cash to pay for supplies that were ordered on credit terms and have already been received and booked (recorded on the balance sheet). Which of the below statements reflects the resulting balance sheet change? a. There is a change to the left-hand side only. b. There is a change to the right-hand side only. c. The cash account decreases by $10,000 and the retained earnings account decreases by $10,000. d. The cash account decreases by $10,000 and the accounts payable account decreases by $10,000. e. The cash account decreases by $10,000 and the supplies account increases by $10,000.

11. Consider the same balance sheet. Assume the business uses $30,000 of its cash to pay salaries. Which of the below statements reflects the resulting balance sheet change? a. There is a change to the left-hand side only. b. There is a change to the right-hand side only. c. The cash account decreases by $30,000 and the retained earnings account is reduced by $30,000. d. The cash account decreases by $30,000 and the long-term debt account is reduced by $30,000. e. The company does not have the ability to pay $30,000 in salaries.

12. True or False: Fund accounting is used by investor-owned (for-profit) businesses to differentiate between operating funds and retirement funds. a. True b. False

Paper For Above instruction

The organization of financial statements, particularly the balance sheet, plays a crucial role in understanding a company's financial health and operational structure. The balance sheet is inherently divided into sections that facilitate the categorization of assets, liabilities, and equity. Typically, the balance sheet is presented in a two-part format: assets are listed on the left (or upper) side, and liabilities alongside shareholders' equity are listed on the right (or lower) side. This dual-section organization helps users quickly assess a company's resource base and financial obligations (Brigham & Ehrhardt, 2016).

Assets on the balance sheet are classified further into current and long-term categories, reflecting their liquidity and maturity. Current assets include cash, accounts receivable, inventories, and other assets that are expected to be converted into cash or consumed within one year or within the operating cycle. Long-term assets, such as property, plant, and equipment, are assets that provide economic benefits beyond a year and are listed separately to emphasize their extended utility (Wild, Subramanyam, & Halsey, 2014). This categorization allows financial analysts and investors to gauge a company's short-term liquidity position and long-term capital investments.

The fundamental accounting equation, Assets = Liabilities + Equity, underpins the balance sheet's structure and reflects the dual aspect of economic resources and claims against those resources. This equation ensures that the balance sheet remains balanced and offers a snapshot of the company's financial position at a specific point in time (Higgins, 2012). Any change in assets, whether due to technological obsolescence, asset depreciation, or revaluation, must be offset by corresponding changes in liabilities or equity to maintain this equality.

When assets such as diagnostic equipment lose value rapidly due to technological changes, the balance sheet requires adjustments to reflect the decrease in asset value while preserving the accounting identity. Typically, this involves recognizing accumulated depreciation or impairments, which indirectly reduce total assets and consequently reduce equity since net income would decrease, affecting retained earnings (Penman, 2012). These adjustments ensure that the reported value of assets remains accurate and reliable for decision-making.

Accumulated depreciation is a contra-asset account that accumulates the total amount of depreciation expense recorded over time for a fixed asset. It appears on the balance sheet as a deduction from gross fixed assets, providing net fixed assets. The relationship between depreciation expense on the income statement and accumulated depreciation on the balance sheet is direct; depreciation expense reduces net income, which, after closing, impacts retained earnings, and accumulated depreciation increases over the asset’s useful life (Khan & Jain, 2014). This linkage maintains consistency and accuracy in financial reporting.

The statement of cash flows complements the balance sheet and income statement by showing the sources and uses of cash during a specific period. It synthesizes information from both sources to present cash inflows and outflows divided into operating, investing, and financing activities. This statement is essential for assessing cash liquidity, solvency, and the company's ability to generate cash from its core operations (Berk & DeMarzo, 2017). The net change in cash, often called the "bottom line," summarizes the net effect of all cash movements, providing critical insights into cash management and financial flexibility.

Changes in the balance sheet due to asset write-offs or transactions affect the fundamental accounting equation. For instance, if net fixed assets are written off, both total assets and equity decrease accordingly. If a firm writes off $20,000 of net fixed assets, the total assets decline, and since no offsetting liability change occurs, equity also decreases by the same amount, preserving the accounting identity (Higgins, 2012).

Retained earnings form part of shareholders’ equity and reflect accumulated net income minus dividends distributed over time. Profitable companies tend to have higher retained earnings, which increase the total equity. In contrast, losses or impairment losses reduce retained earnings and, consequently, overall equity (Wild et al., 2014). The composition of equity, consisting of common stock and retained earnings, indicates the company's internal funding source and profitability history.

In liquidity and short-term financial management, routine transactions such as paying suppliers or salaries impact the balance sheet's liquidity positions and retained earnings. When a company pays suppliers on credit, only the cash account decreases, and accounts payable decreases correspondingly, leaving other assets unaffected—this maintains the balance sheet's integrity. Conversely, paying salaries reduces cash and also impacts net income and retained earnings, reflecting the expense recognition principle (Khan & Jain, 2014).

Fund accounting, though often associated with nonprofit organizations, is also applicable in many contexts where segregation of resources by purpose is necessary. It ensures accountability, especially for funds restricted for specific uses such as endowments or grants. While the statement in the question about investor-owned businesses might be misleading, fund accounting is primarily used in nonprofit and governmental entities rather than typical for-profit enterprises (Finkler et al., 2013).

References

• Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice. Cengage Learning.
• Finkler, S. A., Ward, D. M., Gurtner, S., & Beekman, R. (2013). Financial Management for Nurse Managers and Executives. Elsevier Health Sciences.
• Higgins, R. C. (2012). Analysis for Financial Management. McGraw-Hill Education.
• Khan, M. Y., & Jain, P. K. (2014). Financial Management: Text, Problems and Cases. Tata McGraw-Hill Education.
• Penman, S. H. (2012). Financial Statement Analysis and Security Valuation. McGraw-Hill Education.
• Wild, J. J., Subramanyam, K. R., & Halsey, R. F. (2014). Financial Statement Analysis. McGraw-Hill Education.
• Berk, J., & DeMarzo, P. (2017). Corporate Finance. Pearson Education.
• Additional scholarly articles and regulatory standards can be incorporated to deepen the understanding of financial statement organization and accounting identities.