Multiple Choice
Which of the following are the two main classifications of liabilities on a company's balance sheet?
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9. Current Liabilities
Types of Liabilities
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Which of the following statements is correct regarding a long-lived asset such as equipment?
A
It is reported as a non-current asset on the balance sheet.
B
It is expensed immediately when purchased.
C
It is recorded as revenue when acquired.
D
It is classified as a current liability.
Verified step by step guidance1
Understand the nature of long-lived assets: Long-lived assets, such as equipment, are assets that provide economic benefits over multiple accounting periods and are not intended for immediate sale or consumption.
Review the classification of assets on the balance sheet: Assets are categorized as current or non-current. Current assets are expected to be converted into cash or used within one year, while non-current assets are held for longer periods.
Determine how long-lived assets are reported: Long-lived assets are reported as non-current assets on the balance sheet because they are used in operations over several years and are not liquid or short-term in nature.
Clarify why long-lived assets are not expensed immediately: When purchased, long-lived assets are capitalized, meaning their cost is recorded as an asset and expensed gradually through depreciation over their useful life.
Eliminate incorrect options: Long-lived assets are not recorded as revenue, nor are they classified as current liabilities. Revenue represents income earned, and liabilities represent obligations owed, neither of which applies to the nature of long-lived assets.
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