Which of the following statements about assets reported in the balance sheet is true?

• A. Assets are not affected by the matching principle.
• B. Only tangible assets are included in the balance sheet.
• C. Assets are listed in order of liquidity, with the most liquid assets listed first.
• D. Assets are reported at their current market value on the balance sheet.

Answer: (C)

Verified step by step guidance

1. Understand the concept of assets: Assets are resources owned by a company that have economic value and are expected to provide future benefits. They are reported on the balance sheet, which is a financial statement summarizing a company's financial position at a specific point in time.
2. Review the matching principle: The matching principle is an accounting concept that requires expenses to be recognized in the same period as the revenues they help generate. Assets, however, are not directly affected by this principle because they are reported based on their value and not tied to specific revenue recognition.
3. Clarify the inclusion of tangible and intangible assets: Both tangible assets (e.g., equipment, buildings) and intangible assets (e.g., patents, trademarks) are included in the balance sheet, provided they meet the criteria for recognition as assets.
4. Understand the order of liquidity: Assets are listed on the balance sheet in order of liquidity, meaning the most liquid assets (e.g., cash, accounts receivable) are listed first, followed by less liquid assets (e.g., inventory, property, plant, and equipment). This helps users of financial statements understand the company's ability to convert assets into cash.
5. Discuss valuation of assets: Assets are generally reported at their historical cost or book value, not their current market value. Historical cost is the original purchase price, adjusted for depreciation or amortization, if applicable. This ensures consistency and reliability in financial reporting.