Multiple Choice
On a classified balance sheet for a merchandising company, how is Merchandise Inventory typically reported?
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2. Transaction Analysis
Classified Balance Sheet Components
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Which of the following is a balance sheet item on a classified balance sheet?
A
Service revenue
B
Depreciation expense
C
Accounts payable
D
Rent expense
Verified step by step guidance1
Step 1: Understand the classification of financial statement items. A classified balance sheet organizes assets, liabilities, and equity into subcategories, showing the financial position of a company at a specific point in time.
Step 2: Identify which items belong to the balance sheet. Balance sheet items include assets, liabilities, and equity accounts. Examples are cash, accounts receivable, accounts payable, and common stock.
Step 3: Recognize that revenue and expense accounts (such as service revenue, depreciation expense, and rent expense) are part of the income statement, not the balance sheet.
Step 4: Among the options given, 'Accounts payable' is a liability and therefore a balance sheet item, typically classified under current liabilities on a classified balance sheet.
Step 5: Conclude that the correct balance sheet item from the list is 'Accounts payable' because it represents an obligation the company must pay in the future.
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