Accounting - Classification of terms for the balance sheet
Classification of terms for the balance sheet
Classification of items into current and non-current sections helps
assess liquidity. There are three criteria for separating current from
non-current assets:
* Time - How long before the asset is expected to be converted into cash?
* Intention - Is it intended to convert the asset into cash in the near future?
* Economic benefit - For how long will the asset continue to earn revenue for the business?
Time is also a criterion for separating current and non-current
liabilities. When classifying liabilities it is important to check the date
when a liability falls due. What may be a non-current liability in this
period may become a current liability in the next period. Liabilities such
as loans and mortgages may be in the form of instalment payments. This
means that they have a current and non-current component. For instance, if
you borrowed £ 20,000 over five years then initially you would have
£ 4,000 of loan as a current liability and £ 16,000 as non-current
liability. At the end of the year with £ 4,000 repaid you would show in
the balance sheet £ 4000 as a current liability and £ 12,000 as non
current, both under the title of 'loan'.
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What are the three criterias that seperate none current from current?
There are three criteria for separating current from non-current assets: • Time - How long before the asset is expected to be converted into cash? • Intention - Is it intended to convert the asset into cash in the near future? • Economic benefit - For how long will the asset continue to earn revenue for the business?
What is the difference between mortgage and loan?
In classification of terms for the balance sheet time is also a criterion for separating current and non-current liabilities.
ime - How long before the asset is expected to be converted into cash? Intention - Is it intended to convert the asset into cash in the near future? Economic benefit - For how long will the asset continue to earn revenue for the business?
OK THIS IS VERY IMPORTANT ON HOW TO BALANCE THIS LOAN
what is the difference between liquidity and liability
Accounting -> Classification of terms for the balance sheet Classification of terms for the balance sheet Classification of items into current and non-current sections helps assess liquidity. There are three criteria for separating current from non-current assets: Time - How long before the asset is expected to be converted into cash? Intention - Is it intended to convert the asset into cash in the near future? Economic benefit - For how long will the asset continue to earn revenue for the business? Time is also a criterion for separating current and non-current liabilities. When classifying liabilities it is important to check the date when a liability falls due. What may be a non-current liability in this period may become a current liability in the next period. Liabilities such as loans and mortgages may be in the form of instalment payments. This means that they have a current and non-current component. For instance, if you borrowed £ 20,000 over five years then initially you would have £ 4,000 of loan as a current liability and £ 16,000 as non-current liability. At the end of the year with £ 4,000 repaid you would show in the balance sheet £ 4000 as a current liability and £ 12,000 as non current, both under the title of 'loan'.
How can a non current liability become a current liability at a different period? What factors goes into it?
This course helps to give information about current liabilities, non-current liability, current assets and many more. Proper financial analysis should be made for getting economic benefit in a stipulated time.