Part 1 — External Financial Reporting Decisions

Assets = Liabilities + Equity. The balance sheet (statement of financial position) reports these at a single point in time, so the two sides must always balance.

Current assets are expected to be converted to cash, sold, or consumed within one year or the operating cycle, whichever is longer. Everything else is noncurrent. A classified balance sheet separates the two.

The average time from spending cash on inventory to collecting cash from the sale of that inventory (cash to inventory to receivable back to cash). It defines the 'longer than one year' alternative for current classification.

Contributed (paid-in) capital, retained earnings, treasury stock (a contra-equity deduction), and accumulated other comprehensive income (AOCI).

Working capital = current assets - current liabilities. It measures short-term liquidity and the cushion available to meet near-term obligations.

A multi-step income statement reports intermediate subtotals (gross profit, operating income, income before tax) by separating operating from nonoperating items. A single-step format groups all revenues and gains, then subtracts all expenses and losses in one step.