extended useful life long term assets W r i t i n g
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Discuss the two main distinctions between assets on the balance sheet.
The two main distinctions between assets on a balance sheet are current and long-term assets. Current assets on a balance sheet contain all the assets that are cash or near cash equivalents that can be converted quickly; such as cash, inventory or accounts receivable. Long-term assets are known as non current assets that have a extended useful life Long term assets are considered noncurrent and are illiquid, meaning they can not easily liquidated into cash.
· Discuss reporting requirements for contingencies.
Contingent liabilities must pass two thresholds before it can be reported on a financial statement. It must first be possible to estimate the value of the contingent liability, if the value is estimated then the liability must be more than 50% of being realized. Qualified contingent liabilities are recorded as an expense on the income statement and liability on the balance sheet. However, it the contingent loss is remote; which is less than 50% then the liability should not be reflected on the balance sheet. Any contingent liability that may be questionable before the value can be determined should be disclosed in the footnotes of the financial statement.
· Explain two examples of contingent liabilities
Two examples of contingent liabilities are a company warranty and lawsuit against a company, these both represent a possible loss to the company, but both are depending on some uncertain future event. An example for this is if a lawsuit is filed against a company and the claim of damages is up to $250,000. The company may not know whether to report it as a contingent liability just based solely on the information given. The company must rely on the precedent and legal counsel. A lawsuit is frivolous, this may not need to be disclosed; however, it must be noted on the financial statement but may not need to be listed as a liability on the balance sheet. Under GAAP a contingent liability is defined as a potential future loss the depends on a triggering event that may actual turn into an expense.