Classification in Balance Sheets | CFA Level 1 Test Prep

The Importance of Balance Sheet Classification in CFA Level 1 Exams

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Question

In a classified balance sheet the following is always true:

Answers

A. Current assets include only items that will be converted into cash within 1 year.

B. Assets and liabilities are broken down as current and non-current.

C. Current assets divided by current liabilities will equal working capital.

D. All of these answers are true.

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Explanations

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A. B. C. D.

A classified balance sheet always breaks down current and non-current assets and liabilities. Items defined as current assets are those that will be converted to cash or used in operations within one year or the operating cycle, whichever is longer. Current liabilities are obligations due during the same period. Current assets minus current liabilities is equal to working capital.

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