V. Accounting Cycle--steps can vary if a worksheet is used (see Visual
#3-1). The ten steps repeated each accounting cycle are as follows:
1. Analyze transactions
4. Prepare unadjusted trial balance
6. Prepare an adjusted trial balance
7. Prepare statements
9. Prepare a post-closing trial balance.
VI. Classified Balance Sheet organizes assets and liabilities into important
subgroups and provides more information for decision makers.
A. Classification Structure
1. One of the more important classifications is the separation
between current and noncurrent assets and liabilities.
2. Current items are expected to come due (both collected and
owed) within the longer of one year or the company’s
3. An operating cycle is the time span from when cash is used to
acquire goods and services until cash is received from the sale
of those goods and services.
B. Classification Categories
1. Current assets—cash or other resources that are expected to be
sold, collected, or used within one year or the operating cycle,
whichever is longer. Examples: cash, short-term investments,
accounts receivable, short-term notes receivable, merchandise
inventory, and prepaid expenses.
2. Long-term investments—assets held for more than one year,
that are not used in business operations. Examples: stocks,
bonds, promissory notes, and land held for future expansion.
3. Plant assets—tangible, long-lived assets that are used to
produce or sell goods and services. Examples: equipment,
4. Intangible assets—long-term resources that benefit business
operation. They lack physical form. Their value comes from
the privileges or rights that are granted to or held by the
owner. Examples: goodwill, patents, trademarks, franchises,