WAEC SSCE - Financial Accounting - 1992

Use the following information to answer the given question
\(\begin{array}{c|c} & Ade & Okon \\ & N & N \\ \hline \text{Fixed Capital} & 15,000 & 25,000 \\ \text{Salary per annum} & 6,000 & 8,000 \\ \text{Interest on capital per annum} & \text{8%} & \text{8%} \\ \text{Profit or loss sharing ratio} & \text{40%} & \text{60%}\end{array}\)
The net profit for the year ended 31st December 1990 is N28,000 while drawing are N3,000 and N4,000 for Ade and Okon respectively. What is Ade's share of the profit?

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The purchases of a typewriter for the office was debited to purchases account. This is an error of

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The error of debiting the purchase of a typewriter to the purchases account is an error of principle. An error of principle occurs when a transaction is recorded in the wrong account due to a misunderstanding or misinterpretation of accounting principles. In this case, the typewriter is a fixed asset and should have been recorded as such in the fixed assets account, but it was recorded as a purchase in the purchases account, which is used to record the purchases of goods for resale. This error affects the accuracy of the financial statements and may result in incorrect calculations of expenses and profits. To correct the error, a journal entry should be made to debit the fixed assets account and credit the purchases account.

Adex Company Limited issued ordinary shares N1 each to the public at N1.20. The statement were issued at

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Adex Company Limited issued ordinary shares with a face value (or par value) of N1 each to the public at a price of N1.20 per share. This means that the company received an extra N0.20 per share sold, which is called the "premium". Therefore, the statement is issued at a "premium". The premium represents the difference between the issue price and the face value of the shares, and it is a way for the company to raise additional funds from the sale of shares. It is important to note that this premium does not represent a profit or a loss for the company since the shares were issued above their face value. However, it could be seen as a discount for the investors since they paid less than what the shares might have been worth in the market.

The excess of the par value of a company's shares over the amount for what for which they are issued to the public is called

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The excess of the par value of a company's shares over the amount for which they are issued to the public is called a premium. The par value of a share is the minimum price at which the share can be issued. When a company issues shares at a price higher than their par value, the excess amount is called a premium. For example, if the par value of a share is N1 and it is issued at N2, then the premium is N1 (i.e., N2 - N1). Premium is usually collected by companies to raise additional funds for specific purposes, such as financing a new project, paying off debts, or expanding the business. The premium collected is usually shown as a separate item on the balance sheet, under the heading "share premium account". In conclusion, the correct option is (D) premium.

As evidence of payment to a government ministry, the revenue collector issue

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As evidence of payment to a government ministry, the revenue collector issues a treasury receipt. A treasury receipt is a document that serves as proof of payment made to a government ministry. It is issued by the revenue collector, who is responsible for collecting and recording revenue on behalf of the government. When an individual or organization makes a payment to a government ministry, the revenue collector issues a treasury receipt as evidence of the payment. The treasury receipt contains details such as the amount paid, the date of payment, the name of the payer, and the purpose of the payment. The treasury receipt is an important document because it serves as proof of payment for any future reference or audit purposes. It can be used to verify that a payment was made, and to confirm the details of the payment. In addition, the treasury receipt is also used by the government to record and track revenue collection. It is an important part of the government's accounting system, and is used to ensure that all revenue is properly accounted for and recorded. Therefore, as evidence of payment to a government ministry, the revenue collector issues a treasury receipt.

Use the following information to answer the given question
Rufai, a vulcanize bought 4 machines for N20,200 and incurred the following expenses for the year ended 31st December, 1990
\(\begin{array}{c|c} Glue & N2,100 \\ Thread & N600 \\ Kerosene & N900 \\ Rubber & N558 \\ Matched & N110\end{array}\)
He received N5,772 from customers. Two machines were later sold for N6,990 and N5,670 respectively. What is his revenue receipt?

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A trader paid insurance premium of N1,350 for 15 months ended 31st March 1991. He prepares to 31st December. The amount carried in the Balance Sheet is classified as

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The insurance premium of N1,350 was paid for 15 months, which means that the insurance coverage is for the period from 1st January 1990 to 31st March 1991. Since the trader is preparing the Balance Sheet as of 31st December, which is before the end of the insurance coverage period, the portion of the insurance premium relating to the period from 1st January to 31st December (i.e., 12 months) should be treated as a "prepaid expense". This means that the amount paid for the 12 months should be recorded as an asset on the Balance Sheet. Therefore, the amount carried in the Balance Sheet should be classified as a "current asset". This is because it is an asset that is expected to be used up or converted to cash within a year. It is important to note that the remaining 3 months of insurance coverage (i.e., from 1st January to 31st March 1991) should be expensed in the Profit and Loss account for the year ending 31st December 1990 since they relate to the following year.

Use the following information to answer the given question
\(\begin{array}{c|c} & Ade & Okon \\ & N & N \\ \hline \text{Fixed Capital} & 15,000 & 25,000 \\ \text{Salary per annum} & 6,000 & 8,000 \\ \text{Interest on capital per annum} & \text{8%} & \text{8%} \\ \text{Profit or loss sharing ratio} & \text{40%} & \text{60%}\end{array}\)
The net profit for the year ended 31st December 1990 is N28,000 while drawing are N3,000 and N4,000 for Ade and Okon respectively. What is the profit available for distribution?

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When provision is made for doubtful debt, the accounting entries are debit

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Use the following information to answer the given question
Rufai, a vulcanize bought 4 machines for N20,200 and incurred the following expenses for the year ended 31st December, 1990
\(\begin{array}{c|c} Glue & N2,100 \\ Thread & N600 \\ Kerosene & N900 \\ Rubber & N558 \\ Matched & N110 \end{array}\)
He received N5,772 from customers. Two machines were later sold for N6,990 and N5,670 respectively. What is his revenue expenditure?

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Nagode (Nig.) Ltd. has three departments A, B and C. You are given the following Information
(i)Rent for the year - N3,000
(ii) Selling and distribution expenses - N1,800
(iii) Department
\(\begin{array}{c|c} & Turnover & \text{Floor space in square meters} \\ & N & N \\ \hline A. & 40,000 & 120 \\ B. & 60,000 & 80 \\ C. & 80,000 & 100\end{array}\)
How much of selling and distribution expenses is apportioned to department A?

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The accounting equation is

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Use the following information to answer the given question
Emeka Chukwudi (Nig.) Limited is a manufacturing company. Its books showed the following for the year ended 31st December, 1990
\(\begin{array}{c|c} \text{Opening stock - Raw materials} & 42,000 \\ \text{Purchases - Raw materials} & 265,000 \\ \text{Outwards} & 13,000 \\ \text{Returns outwards} & 13,000 \\ \text{Depreciation - plant and Machinery} & 10,000 \\ wages & 52,000 \\ \text{Closing stock - Raw materials} & 72,000 \\ \text{Direct expenses} & 11,000 \\ \text{Production Manager's salaries} & 18,000 \\ \text{Factory rent} & 15,000\end{array}\)
The prime cost is

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Use the following information to answer the given question
Emeka Chukwudi (Nig.) Limited is a manufacturing company. Its books showed the following for the year ended 31st December, 1990
\(\begin{array}{c|c} \text{Opening stock - Raw materials} & 42,000 \\ \text{Purchases - Raw materials} & 265,000 \\ \text{Outwards} & 13,000 \\ \text{Returns outwards} & 13,000 \\ \text{Depreciation - plant and Machinery} & 10,000 \\ wages & 52,000 \\ \text{Closing stock - Raw materials} & 72,000 \\ \text{Direct expenses} & 11,000 \\ \text{Production Manager's salaries} & 18,000 \\ \text{Factory rent} & 15,000\end{array}\)
The cost of production is

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To determine the cost of production, we need to calculate the total cost incurred in the production process. This includes the cost of raw materials used, direct expenses, wages, and other manufacturing overheads. The calculation is as follows: Total cost of raw materials = Opening stock + Purchases – Returns outwards – Closing stock Total cost of raw materials = 42,000 + 265,000 – 13,000 – 72,000 Total cost of raw materials = N222,000 Direct expenses = N11,000 Wages = N52,000 Other manufacturing overheads = Depreciation + Production Manager's salaries + Factory rent Other manufacturing overheads = N10,000 + N18,000 + N15,000 Other manufacturing overheads = N43,000 Therefore, the total cost of production = Total cost of raw materials + Direct expenses + Wages + Other manufacturing overheads Total cost of production = N222,000 + N11,000 + N52,000 + N43,000 Total cost of production = N328,000 Hence, the cost of production is N328,000. Therefore, the option that best answers the question is option D.

In a manufacturing company, wages paid to operatives increase the value of

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In a manufacturing company, wages paid to operatives are a direct cost associated with the manufacturing process. Direct costs are costs that can be directly traced to specific products and are necessary for the production process to take place. Wages paid to operatives are part of the prime cost of the product. Prime cost refers to the direct costs associated with the manufacturing process, such as raw materials, direct expenses, and wages. Therefore, when wages are paid to operatives, they increase the value of the prime cost of the product. This is because wages are a necessary cost for the production process, and without them, the product cannot be produced. Hence, the correct option is "prime cost".

Use the following information to answer the given question
Emeka Chukwudi (Nig.) Limited is a manufacturing company. Its books showed the following for the year ended 31st December, 1990
\(\begin{array}{c|c} \text{Opening stock - Raw materials} & 42,000 \\ \text{Purchases - Raw materials} & 265,000 \\ \text{Outwards} & 13,000 \\ \text{Returns outwards} & 13,000 \\ \text{Depreciation - plant and Machinery} & 10,000 \\ wages & 52,000 \\ \text{Closing stock - Raw materials} & 72,000 \\ \text{Direct expenses} & 11,000 \\ \text{Production Manager's salaries} & 18,000 \\ \text{Factory rent} & 15,000\end{array}\)
The factory overhead is

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In accounting, factory overhead refers to indirect costs that are associated with the manufacturing process. These costs cannot be directly traced to specific products, but are necessary for the production process to take place. To calculate the factory overhead, we need to add up all the indirect costs associated with the manufacturing process. These costs are: - Depreciation of plant and machinery: N10,000 - Production Manager's salaries: N18,000 - Factory rent: N15,000 Therefore, the total factory overhead is N10,000 + N18,000 + N15,000 = N43,000. Hence, the correct option is "N43,000".

Materials are taken out of government unallocated store by means of

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In a non-profit oriented organization, the excess of income over expenditure is

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In a non-profit oriented organization, the excess of income over expenditure is added to the accumulated fund. This means that any surplus or profit generated by the organization is not distributed to shareholders or owners, but rather reinvested back into the organization to support its mission and activities in the future. The accumulated fund is a reserve that represents the organization's net assets, and it grows over time as surpluses are added to it. This helps to ensure the long-term sustainability of the organization and its ability to continue to provide services or support to its beneficiaries.

Directors' remuneration are recorded in the book as

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Directors' remuneration is recorded in the book as revenue expenditure. Revenue expenditure is a type of expenditure that is incurred in the normal course of business operations, and which is expected to provide benefits in the current period only. This includes expenses such as salaries, wages, rent, and utilities. Directors' remuneration refers to the amount paid to the directors of a company for their services. This includes their salary, bonuses, and any other benefits they receive in connection with their position as directors. Since directors' remuneration is a recurring expense and is incurred in the normal course of business operations, it is recorded as revenue expenditure. This means that it is deducted from the revenue earned by the company during the same accounting period to arrive at the net profit. Recording directors' remuneration as revenue expenditure helps to ensure that the expenses associated with running the business are properly accounted for in the income statement. It also helps to provide a more accurate picture of the profitability of the business, as all expenses are deducted from revenue to arrive at the net profit. Therefore, directors' remuneration is recorded in the book as revenue expenditure.

Impersonal real accounts include. i. expenditure on telephone ii. motor vehicles iii. expenses on telegram iv. land and buildings

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Which of the following will a supplier send to a customer whose invoice was undercast?

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If a supplier discovers that their invoice to a customer was undercast (i.e., the amount charged was less than the actual amount due), they will need to send a debit note to the customer. A debit note is a document sent by a supplier to a customer to inform them of an additional amount that is owed. In this case, the debit note will state the additional amount that was undercharged on the original invoice and request payment for the balance. On the other hand, a credit note is a document that a supplier sends to a customer to reduce the amount owed. This would be used if the supplier had overcharged the customer. An invoice is a document that a supplier sends to a customer to request payment for goods or services supplied. However, in this scenario, the original invoice was undercast, so sending another invoice would not correct the error. A cheque is a payment method used to settle outstanding balances, but it is not relevant in this situation, as the supplier is not making a payment to the customer. Similarly, a payment voucher is a document used by a company to authorize payments to suppliers, but it is not relevant in this scenario. In conclusion, the correct option is (B) debit note, as it is the document that the supplier would send to the customer in case of an undercast invoice.

Which of the following is not a book of prime entry?

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A book of prime entry is a book where transactions are first recorded before they are later posted to the general ledger. Based on this definition, one of the options listed above is not a book of prime entry. The option that is not a book of prime entry is the "purchases ledger." The purchases ledger is a ledger that contains a record of all credit purchases made by the business. It is not a book of prime entry because it is not the first place where transactions are recorded. The purchases day book is the book of prime entry for purchases, and it is from there that the information is posted to the purchases ledger. Therefore, the answer is "purchases ledger".

In which of the following books will trade discount be recorded?

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Nagode (Nig.) Ltd. has three departments A, B and C. You are given the following Information
(i)Rent for the year - N3,000
(ii) Selling and distribution expenses - N1,800
(iii) Department
\(\begin{array}{c|c} & Turnover & \text{Floor space in square meters} \\ & N & N \\ \hline A. & 40,000 & 120 \\ B. & 60,000 & 80 \\ C. & 80,000 & 100\end{array}\)
How much rent is apportioned to department C?

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To apportion the rent to each department, we need to use a suitable basis that reflects the usage of the rented space by each department. In this case, we will use the floor space occupied by each department as the basis for apportionment. First, we need to calculate the total floor space of all departments: Total floor space = 120 + 80 + 100 = 300 square meters Next, we can calculate the percentage of the total floor space occupied by each department: Department A: 120/300 = 0.4 or 40% Department B: 80/300 = 0.2667 or 26.67% Department C: 100/300 = 0.3333 or 33.33% Using these percentages, we can apportion the rent to each department as follows: Rent apportioned to department A = 0.4 x N3,000 = N1,200 Rent apportioned to department B = 0.2667 x N3,000 = N800 Rent apportioned to department C = 0.3333 x N3,000 = N1,000 Therefore, the amount of rent apportioned to department C is N1,000. The correct option is (D).

Subscription in advance is treated in the balance sheet of a club as

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Subscription in advance refers to the money received by a club from its members in advance for future services or events that will be provided by the club. This amount is considered a liability until the club delivers the promised services or events. Therefore, the subscription in advance will be treated as a current liability in the balance sheet of a club. This is because it represents an obligation that the club owes to its members, and it is expected to be settled within the next twelve months. To summarize, subscription in advance is treated as a current liability because it represents money received by the club from its members in advance for services or events that have not yet been provided.

A trader paid insurance premium of N1,350 for 15 months ended 31st March 1991. He prepares to 31st December. How much is carried in the Balance Sheet at 31st December 1990?

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Which of the following is not a balance sheet item?

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Dividend received is not a balance sheet item. A balance sheet is a financial statement that shows a company's financial position at a particular point in time. It includes assets, liabilities, and equity. The purpose of the balance sheet is to provide information about the company's financial health, including what it owns (assets), what it owes (liabilities), and the amount invested by the owners (equity). Out of the options given, provision for discount, outstanding wages, prepaid rent, and proposed dividend are all balance sheet items. These are items that are reported on the balance sheet because they represent either an asset or a liability of the company. However, dividend received is not a balance sheet item. Dividend received represents the amount of money that a company has received from its investments in other companies. This is reported in the income statement, which shows a company's revenue, expenses, and net income or loss for a given period. Dividend received is not an asset or a liability of the company, so it is not reported on the balance sheet.

Use the following information to answer the given question
\(\begin{array}{c|c} & Ade & Okon \\ & N & N \\ \hline \text{Fixed Capital} & 15,000 & 25,000 \\ \text{Salary per annum} & 6,000 & 8,000 \\ \text{Interest on capital per annum} & \text{8%} & \text{8%} \\ \text{Profit or loss sharing ratio} & \text{40%} & \text{60%}\end{array}\)
The net profit for the year ended 31st December 1990 is N28,000 while drawing are N3,000 and N4,000 for Ade and Okon respectively. What is Okon's share of the profit?

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Use the following information to answer the given question
\(\begin{array}{c|c} & Ade & Okon \\ & N & N \\ \hline \text{Fixed Capital} & 15,000 & 25,000 \\ \text{Salary per annum} & 6,000 & 8,000 \\ \text{Interest on capital per annum} & \text{8%} & \text{8%} \\ \text{Profit or loss sharing ratio} & \text{40%} & \text{60%}\end{array}\)
The net profit for the year ended 31st December 1990 is N28,000 while drawing are N3,000 and N4,000 for Ade and Okon respectively. What is the interest on capital?

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Nagode (Nig.) Ltd. has three departments A, B and C. You are given the following Information
(i)Rent for the year - N3,000
(ii) Selling and distribution expenses - N1,800
(iii) Department
\(\begin{array}{c|c} & Turnover & \text{Floor space in square meters} \\ & N & N \\ \hline A. & 40,000 & 120 \\ B. & 60,000 & 80 \\ C. & 80,000 & 100\end{array}\)
How much rent is appointed to department A?

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To apportion the rent to department A, we need to use the floor space occupied by department A as a percentage of the total floor space occupied by all three departments. The rent will be apportioned to each department based on its percentage of the total floor space. Total floor space = floor space of department A + floor space of department B + floor space of department C = 120 + 80 + 100 = 300 Now, we can calculate the percentage of the total floor space occupied by department A: Percentage of floor space occupied by department A = (floor space of department A / total floor space) x 100% = (120 / 300) x 100% = 40% To calculate the rent apportioned to department A, we multiply the total rent by the percentage of floor space occupied by department A: Rent apportioned to department A = 40% x N3,000 = N1,200 Therefore, the amount of rent appointed to department A is N1,200.

One of the advantages of control account is that

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One of the advantages of a control account is that all errors are localized, thus reducing delays in balancing accounts. A control account is a summary account that is used to keep track of the total balance of a group of related accounts. For example, a sales ledger control account is used to keep track of the total balance of all the individual customer accounts in the sales ledger. By using a control account, it becomes easier to detect errors or discrepancies in the individual accounts. If there is an error in one of the individual accounts, it will affect the balance of the control account. This makes it easier to pinpoint where the error occurred and to correct it. If there were no control account, it would be more difficult and time-consuming to identify and correct errors in individual accounts. This is because the errors would be spread out across multiple accounts, making it harder to locate them. In addition, using a control account helps to speed up the process of balancing accounts. By having a summary of all the individual accounts in one place, it is quicker and easier to ensure that the total balances match with the overall balance in the control account. Therefore, one of the advantages of a control account is that it localizes errors, making it easier and faster to identify and correct them, and it helps to speed up the process of balancing accounts.

Ajijola Enterprises bought 40 pairs of shoes at N45 each from Kabi Shoe Factory on credit. This transaction will first be recorded by Ajijola in the

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Ajijola Enterprises bought 40 pairs of shoes from Kabi Shoe Factory on credit. The first record of this transaction by Ajijola will be in the "purchases day book". The purchases day book is a special journal used to record all purchases of goods made on credit. It is usually the first point of entry for credit purchases in a business's accounting system. The purchase is recorded in the purchases day book to keep a track of all the purchases made on credit for a particular period, which is later used to prepare the purchase account and the creditor's account.

A private limited company is that which i. restricts the right to transfer its share. ii. has a minimum of seven members. iii. limits membership to fifty. iv. offers its shares for sale to the public

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The correct answer is (i) and (iii): A private limited company is a type of company that has a legal structure and is registered under the Companies and Allied Matters Act (CAMA) in Nigeria. It is characterized by having restrictions on the right to transfer its shares, which means that the shares cannot be freely bought and sold in the open market. This is because the company has a limited number of members, usually not more than fifty, and these members are known to one another. In addition, a private limited company does not offer its shares for sale to the public. This means that the company cannot raise capital by inviting the general public to buy its shares. Instead, the shares are usually owned by the founders, family members, or close associates of the company. Therefore, options (i) and (iii) are correct as they correctly describe the characteristics of a private limited company.

Chukwu's Capital at 1/1/89 and 31/12/89 were N30,000 and N50,000 respectively. During the year he introduced additional capital of N10,500 and withdrew N5,300 for private use. What is his profit for 1989?

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The fixed amount of money set aside for pretty expenses is called

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Use the following information to answer the given question
Rufai, a vulcanize bought 4 machines for N20,200 and incurred the following expenses for the year ended 31st December, 1990
\(\begin{array}{c|c} Glue & N2,100 \\ Thread & N600 \\ Kerosene & N900 \\ Rubber & N558 \\ Matched & N110\end{array}\)
He received N5,772 from customers. Two machines were later sold for N6,990 and N5,670 respectively. What is his capital receipt?

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The Chief accounting officer of the Federation Republic of Nigeria is the

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The Chief accounting officer of the Federation Republic of Nigeria is the Accountant General of the Federation. This is the person responsible for managing the finances of the federal government of Nigeria. The Accountant General is responsible for maintaining the accounts of the government, preparing the annual financial statements, and advising the government on financial matters. They work closely with other government officials such as the Minister of Finance and the Auditor General of the Federation to ensure that the government's finances are properly managed and accounted for.

Which of the following is not on debtor's legal control account?

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The item that is not on the debtor's legal control account is the "cash sales." A debtor's legal control account is a record of all transactions between a business and its debtors. It includes items such as credit sales, bills receivable, dishonored checks, and cash received from customers. These are all items that involve the debtor owing the business money. However, cash sales are not included in the debtor's legal control account because they do not involve the debtor owing the business money. Cash sales are transactions where the customer pays for the goods or services immediately with cash, and no credit is extended. Therefore, they do not involve any debt owed by the customer and are not included in the debtor's legal control account.

In a professional partnership, membership must be between

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In a professional partnership, membership must be between 2 and 50. A professional partnership is a type of business organization that is formed by two or more individuals who work together in a common field. This type of partnership is common in professions such as law, accounting, and medicine. To form a professional partnership, there must be at least two members. This is because a partnership is a legal agreement between two or more individuals to carry on a business together and share in the profits and losses. On the other hand, there is a legal limit to the maximum number of members that can form a professional partnership. This limit is usually set by the regulatory bodies governing the profession. In most cases, the maximum number of members is set at 50. Therefore, in a professional partnership, membership must be between 2 and 50. The partnership must have at least two members to be considered a partnership, and cannot have more than 50 members due to regulatory restrictions.

A trader paid insurance premium of N1,350 for 15 months ended 31st March 1991. He prepares to 31st December. How much is charges to the profit and loss account for 1990?

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To determine the amount charged to the profit and loss account for 1990, we need to find the portion of the insurance premium that applies to the period from January 1, 1990, to December 31, 1990. The insurance premium covers 15 months from January 1, 1990, to March 31, 1991. Therefore, the premium per month is N1,350 ÷ 15 = N90. Since we want to find the premium for the period from January 1, 1990, to December 31, 1990, we need to calculate the number of months in that period. January 1, 1990, to December 31, 1990, is a period of 12 months. Therefore, the premium applicable to that period is N90 × 12 = N1,080. Thus, the amount charged to the profit and loss account for 1990 is N1,080.

Nagode (Nig.) Ltd. has three departments A, B and C. You are given the following Information
(i)Rent for the year - N3,000
(ii) Selling and distribution expenses - N1,800
(iii) Department
\(\begin{array}{c|c} & Turnover & \text{Floor space in square meters} \\ & N & N \\ \hline A. & 40,000 & 120 \\ B. & 60,000 & 80 \\ C. & 80,000 & 100\end{array}\)
How much of selling and distribution expenses is apportioned to department B?

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Which of the following will not affect the agreement of the cash book balance and bank statement balance?

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Use the following information to answer the given question
Rufai, a vulcanize bought 4 machines for N20,200 and incurred the following expenses for the year ended 31st December, 1990
\(\begin{array}{c|c} Glue & N2,100 \\ Thread & N600 \\ Kerosene & N900 \\ Rubber & N558 \\ Matched & N110\end{array}\)
He received N5,772 from customers. Two machines were later sold for N6,990 and N5,670 respectively. What is his revenue expenditure?

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The assets of business can be classified broadly int

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Business assets can be classified into different types based on their nature and purpose. One way to categorize assets is by looking at their mobility and expected usage period. One broad classification of business assets is into fixed and current assets. Fixed assets are the long-term assets that a business owns and uses in its operations, such as buildings, machinery, and vehicles. These assets are not intended for sale and have a useful life of more than one year. Current assets, on the other hand, are short-term assets that a business owns and expects to convert into cash or use up within one year. Examples of current assets include cash, inventory, and accounts receivable. This classification is helpful because it distinguishes between assets that are meant to be held for a longer period versus those that are intended for short-term use. It also helps businesses better manage their financial resources by allowing them to allocate funds towards different types of assets depending on their needs and objectives.