Bus Adm 201 Lecture 2Outline of Last Lecture II. Accounting ProcessA. Definition of AccountingIII. Business Activities (3)IV. Forms of Business OrganizationV. Four reports required by GAAPVI. Users and Uses of financial informationOutline of Current Lecture VII. More on Financial StatementsVIII.Current AssetsIX. The Classified Balance SheetX. Long-term InvestmentsXI. PP&EXII. Intangible Assets, Long-term Liabilities, Current Liabilities, Stockholders’ EquityCurrent LectureA Balance Sheet:1. Changes Constantly (every time an activity occurs)2. Shows assets, liabilities and equities as of a specific date. (prepare at least one per year)3. Uses original cost (historical cost principle) for most items. Current fair market value (FMV) used for some assets like marketability securities since daily price is readily available4. Only shows items that can be expressed in monetary units ($) Which assets or liabilities can’t be expressed in $$$?Current Assets:- Assets that are expected to be converted to cash or used in the business within a short period of time, usually one per year.- Current assets are listed in order of liquidity (convert them to cash)- Examples: Cash, Short term investments, receivables, inventories, supplies on hand, pre-paid expensesThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.The Classified Balance SheetGenerally contains the following standard classifications:- Current Assets- Long-Term Investments- Property, Plant, and Equipment- Intangible Assets- Current Liabilities- Long-Term Liabilities- Stockholders’ EquityLong-Term Investments- Assets whose conversion to cash is not expected - Assets not intended for use within the Business- Examples:-Investments of stocks, notes, and bonds of other corporations-Land held for speculation-Rental buildingsProperty, Plant, and Equipment (PP&E)- Assets with relatively long useful lives- Assets used in operating the business- Examples: land, buildings, machinery, delivery equipment, furniture and fixturesPP&E recording rules: - Record and keep on balance sheet the cost of the asset (not Value)- Expense a portion of asset cost over a number of years- Depreciation expense is recorded each year on most long lived assets used in a business- Accumulated Depreciation: appears on the balance sheet as a negative adjustment to PP&E it is the total amount of depreciation expense taken over the life of the assetIntangible Assets- Like PP&E usually have long useful life- Have no physical substance- Examples: patent, copyrights, trademarks or trade names, franchise, and goodwillCurrent Liabilities- Obligations that are supposed to be paid within the coming year- Examples: notes payable, accounts payable, wages payable, etc.Long-term (non-current) Liabilities- Debts expected to be paid after one year- Examples: bonds payable, long-term notes payable, etc.Stockholders’ Equity- Common Stock- investments in the business by the stockholders- Retained Earnings- earnings kept for use in the