Which of the following would not be included as an asset on a corporate balance sheet?
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A. B. C. D. E.Explanation
Common stock. Common stock is not as asset; it represents funds received from the sale of stock to owners of the firm. It is ownership equity, not an asset.
The correct answer is E. Common stock.
A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It consists of three main sections: assets, liabilities, and shareholders' equity. Assets represent the economic resources owned or controlled by a company.
Let's go through each option to understand why common stock would not be included as an asset on a corporate balance sheet:
A. Inventory: Inventory refers to the goods or products that a company holds for sale or production. It represents a current asset and is included on the balance sheet. Companies typically include the cost of inventory they have on hand, such as raw materials, work-in-progress, and finished goods.
B. Marketable securities: Marketable securities are financial instruments such as stocks, bonds, or mutual funds that can be easily bought or sold in the market. They are classified as current or non-current assets, depending on the company's intention to hold them for the short term or long term. Marketable securities are included on the balance sheet as an investment asset.
C. Buildings: Buildings owned by a company, such as office buildings, manufacturing facilities, or warehouses, are classified as long-term or non-current assets. They represent tangible assets and are included on the balance sheet. The cost of acquiring the buildings, including any improvements or renovations, is reported on the balance sheet as the value of the buildings.
D. Accounts receivable: Accounts receivable refers to the amounts owed to a company by its customers or clients for goods or services provided on credit. It represents a current asset and is included on the balance sheet. Accounts receivable represents the company's right to receive cash in the future and is reported at its net realizable value, which reflects the amount expected to be collected.
E. Common stock: Common stock represents the ownership interest or equity in a corporation. While common stockholders have a claim on the company's assets and earnings, common stock itself is not considered an asset. It represents a claim against the company's assets rather than an asset itself. The common stockholder's equity is reported separately in the shareholders' equity section of the balance sheet, which also includes retained earnings and additional paid-in capital.
In summary, common stock is not considered an asset on a corporate balance sheet because it represents an ownership interest in the company rather than an economic resource controlled by the company. The correct answer is E. Common stock.