raul herreragood afternoon professor W r i t i n g
Good afternoon Professor, and Class
- There are two types of assets presented in the balance sheet, current assets, and long-term assets, the main distinction between these two is the liquidity they have. In the balance sheet, they are listed in this order, from most liquid to least liquid. The business will use current assets in a year or less. In other words, they can be converted to cash within a year’s time. Examples of current assets are cash, accounts receivable, inventory, supplies. On the other hand, long-term assets are sometimes called fixed assets; they represent durable assets and will last more than one year. These assets cannot easily be converted to cash within a year. Examples of these assets are buildings, automobiles, intangible assets, which have value but no physical presence.
- According to Kieso, Weygandt & Warfield, 2016 (pg 673), a contingency is “an existing condition, situation, or set of circumstances involving uncertainty as to possible gain (gain contingency) or loss (loss contingency) to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur.” The requirements for reporting contingencies should meet these conditions: 1. The information available prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements. 2. The amount of the loss can be reasonably estimated.
- One example of contingent liability could be a lawsuit from a rival firm for patent infringement. The company’s legal department thinks that the rival firm has a strong case, and the business estimates a $2 million loss if the firm loses the case. Because this is something that probably will happen, the company should record (accrued) the $2M as a legal expense and credit the accrued expenses account. Another clear example of contingent liability would be a product warranty; for example, the cases we had recently with car failures, companies like Toyota or Ford, should record the costs for all the car recalls. They were liable and paid for i