Why is it important to distinguish between current and long term assets and liabilities? Why not...

Why is it important to distinguish between current and long term assets and liabilities? Why not just lump them all together?

Solutions

Expert Solution

Current Liabilities are the short term obligation that are due within one year and will require cash payment. Long term liabilities are the obligation which is due for more than one year. Hence segregation between these are important to determine the immediate liquidity needs of the company. As the current liabilities needs to be paid in one year so sufficient cash should be there to fulfill these obligations. If we do not segregate it than how much cash we need immediately would be unable to be determined.

Current Assets are assets that are more liquid and easily convertible into cash current assets help us to determine that how much financial assets it has to meets its short term obligation/the liabilities that will be due within one year. Long term assets are the assets held by the company for more than one year like property, plant and equipment. The segregation between current assets and long term assets is important as than we are able to know that how much financial assets can be converted into cash immediately. It also helps us to know the liquidity position.

The segregation are important as it also helps in calculation various ratios, and also helps in determining operational efficiency and financial strength.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Distinguish between current and long-term liabilities. Give an example.

ESSAY: CURRENT LIABILITIES: Distinguish between current and long-term liabilities. Give an example. Explain what a deferred liability is. Give an example. Explain the difference between an employee payroll deduction and employer benefits. Give an example. Explain the rules regarding when and how a contingency is recorded. Give an example. Explain when product warranty is recorded and why it is recorded when it is. Give an example.

Distinguish between Current/Short term Liabilities and Non-current/Long term Liabilities. Illustrate your answer with journal entries as...

Distinguish between Current/Short term Liabilities and Non-current/Long term Liabilities. Illustrate your answer with journal entries as examples.

Explain how to determine a liability. Distinguish between current and long-term liabilities as well as the...

Explain how to determine a liability. Distinguish between current and long-term liabilities as well as the reporting requirements for each. Evaluate business events for classification as a contingency in the financial statements. Record journal entries needed for bonds issued and sold at a premium and discount.

What are the major differences between current and long-term liabilities? Which one is more important, why...

What are the major differences between current and long-term liabilities? Which one is more important, why and why not?

1 - What is the rule that used to distinguish current and long- term liabilities? 2...

1 - What is the rule that used to distinguish current and long- term liabilities? 2 – Give 5 examples of intangible assets?

On December 31, Nate Inc. reported the following (in millions): Current Assets Current Liabilities Long-term Liabilities...

On December 31, Nate Inc. reported the following (in millions): Current Assets Current Liabilities Long-term Liabilities Equity $4,863 $4,544 $5,939 $1,305 What amount did the company report as total assets? Select one: a. $6,925 million b. None of the these are correct. c. $16,651 million d. $10,483 million e. $14,041 million

A firm's long-term assets = $30,000, total assets = $310,000, inventory = $39,000 and current liabilities...

A firm's long-term assets = $30,000, total assets = $310,000, inventory = $39,000 and current liabilities = $20,000. What are the firm's current ratio and quick ratio?(Round your answer to 1 decimal place.) A) Current ratio = 16.5; quick ratio = 14.6 B) Current ratio = 24.0; quick ratio = 22.1 C) Current ratio = 19.0; quick ratio = 17.1 D) Current ratio = 14.0; quick ratio = 12.1

The current ratio looks at the current liabilities versus current assets. Why is this ratio important...

The current ratio looks at the current liabilities versus current assets. Why is this ratio important and why not look at total liabilities versus total assets? What is the current ratio telling us?

Accounting for debt is important in businesses. Understanding the accounting for current and long-term liabilities is...

Accounting for debt is important in businesses. Understanding the accounting for current and long-term liabilities is important in understanding the solvency of a business. In this Discussion, you will look at how businesses finance operations through debt. Sunner Company obtains $20,000 in cash by signing a 9%, 6-month, $20,000 note payable to First Bank on July 1. Sunner's fiscal year ends on September 30. What information should be reported for the note payable in the annual financial statements? What disclosure...

Present current and long term assets and liabilities on a balance sheet (statement of financial position)...

Present current and long term assets and liabilities on a balance sheet (statement of financial position) including require disclosures. Please explain.

Subjects