Financial Reporting Problem, Part 2 Essay

1161 Words5 Pages
The Microsoft Corporation follows a very strict set of regulations for their accounting reports. Starting with the assets, they are listed in the proper order because they are listed in order of liquidity. This means that they are listed in an order from top to bottom in which the top is most likely to be converted into cash. The highest liquidity is cash, whereas something like equipment and machinery has the lowest liquidity. In financial analysis, classification of assets is used in order to evaluate the health of a company by examining how well each of the company's type of assets is performing. Microsoft’s asset classes include current assets, investments, property, plant, and equipment assets, and intangible assets and they are listed in the correct order. To be classified as a current asset, the amounts must be cash or be expected to turn to cash, be used up, or expire within one year of the balance sheet date. In the rare cases where a company’s operating cycle is longer than one year, the operating cycle time is used in place of the one-year time period. Short term investments aren't as readily available as money in a checking account, but they provide added cushion if some immediate need were to arise. Short Term Investments become important when a company has so much cash sitting around that it has no qualms about tying some of it up in slightly longer-term investments. Corporate intellectual property (items such as patents, trademarks, copyrights, business methodologies), goodwill and brand recognition are all common intangible assets in today's marketplace. An intangible asset can be classified as either indefinite or definite depending on the specifics of that asset. Cash and cash equivalents are the most liquid assets found within the asset portion of a company's balance sheet. A cash equivalent is a safe investment that carries such a low amount of
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