Multiple Choice
On a classified balance sheet, liabilities are reported on the:
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2. Transaction Analysis
Classified Balance Sheet Components
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Which of the following accounts would appear in the equity section of a classified balance sheet?
A
Prepaid Expenses
B
Inventory
C
Common Stock
D
Accounts Payable
Verified step by step guidance1
Understand the structure of a classified balance sheet: A classified balance sheet organizes accounts into categories such as assets, liabilities, and equity. The equity section represents the ownership interest of shareholders in the company.
Review the accounts provided in the question: Prepaid Expenses, Inventory, Common Stock, and Accounts Payable. Determine which category each account belongs to.
Classify Prepaid Expenses and Inventory: These are asset accounts. Prepaid Expenses represent payments made in advance for future expenses, and Inventory represents goods available for sale. Neither belongs in the equity section.
Classify Accounts Payable: This is a liability account. It represents amounts owed to creditors for goods or services received. It does not belong in the equity section.
Classify Common Stock: This is an equity account. It represents the ownership interest of shareholders in the company and is part of the equity section of the classified balance sheet.
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