Final answer:
Notes receivables are classified as current assets if they are due within one year and as noncurrent assets if they are due beyond one year. This classification impacts a company's liquidity ratio and is based on the due date of the notes.
Step-by-step explanation:
It is false that notes receivable are generally reported as noncurrent assets. Notes receivable are usually classified as current assets if they are due within one year. However, if the notes receivable are due beyond one year, they are considered noncurrent assets. This distinction is essential in accounting as it affects the liquidity ratio of a company and provides valuable financial information to investors and executives. The classification of notes receivable is based on the due date of the notes relative to the balance sheet date.
A firm's balance sheet reports assets, liabilities, and net worth. The assets include all the financial instruments such as reserves, loans made by the bank, and government securities. Liabilities, on the other hand, include deposits made by customers and other debts. The net worth is calculated by subtracting the total liabilities from the total assets, and it is included on the liabilities side to ensure the T-account balances to zero. Healthy businesses will often have a positive net worth, while a bankrupt firm will have a negative net worth.