Intermediate Accounting (16th Edition)

Published by Wiley
ISBN 10: 1118743202
ISBN 13: 978-1-11874-320-1

Chapter 5 - Balance Sheet and Statement of Cash Flows - Review and Practice - Questions - Page 237: 9


Affirmatively, the classification of financial statements normally helps the users by grouping items with similar characteristics as well separating items with different characteristics. Current assets are expected to be converted to cash within a year or the operating cycle whichever of the two is longer, property plant and equipment on the other hand will generate cash inflows over a long-term period of time.

Work Step by Step

This is to mean, separating long-term assets from the current assets will highly facilitate the computation of useful ratios such as the current ratio.
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