If the operating cycle of a business is fifteen months, which of the following statement is true?
A) Cash set aside for a purchase of equipment will be shown as a current asset.
B) A note receivable that is due one year and two months from the balance sheet date will be shown as a current asset.
C) Balance sheets should be prepared more often than income statements.
D) A note, that is payable by the business two years from the balance sheet date, will be shown as a current liability.

Question

Quizplus · Accepted Answer

If the operating cycle of a business is fifteen months, a current asset is anything that will produce cash or will be used up in less than fifteen months. Therefore, cash set aside for the purchase of equipment will be shown as a long-term asset, and a note receivable that is due one year and two months from the balance sheet date will also be shown as a long-term asset. Likewise, a long-term liability is anything that is due after fifteen months; therefore, a note payable by the business two years from the balance sheet date would be considered a long-term liability. Balance sheets and income statements are prepared with different frequencies depending on the needs of the business, so statement C is not necessarily true.

If the Operating Cycle of a Business Is Fifteen Months