Just like the balance sheet distinguishes current assets from non-current ones, it also reports current and...

Just like the balance sheet distinguishes current assets from non-current ones, it also reports current and non-current liabilities?

What is the difference between these two categories?

Why do we distinguish current items from non-current ones?

Expert Solution

Answer Balance sheet shows financial position on particular date of an organization. There are two parts of Balance sheet.

1. Assets

2. Liabilities

All assets items classify in fixed assets/non current assets like (land, building, plant and machinery, intangible assets) and current assets like (cash, debtors, bank balance, accounts receivable etc). Liabilities also be classify in current liabilities like (account payable, dividend and taxes payable, cash credit etc.) And noncurrent liabilities like (share capital, loan/debt capital, reserve capital etc).

Difference between current and non current items- Current assets and liabilities are those items of which present amount expected to recover or estimate to settle with in a period of not exceeding 12 months. And all remaining assets and liabilities do not have this type of nature. All remaining assets and liabilities should be classified under non current head. These include

• Tangible assets like plant, land, building etc

• Intangible assets like patent, copy right, goodwill etc.

• Financial instruments other than held for trading, and to be released beyond a period of 12 month

For following reasons, We distinguish current items from non-current items like:-

• For compliance of IFRS

• For disclose financial statement true and fair.

• For calculate correct ratio like current ratio, quick ratio etc.

ekkarill92 answered 1 year ago

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