Final answer:
Assets and liabilities are classified as current and long-term for liquidity analysis purposes used by banks. Current liabilities are those debts and obligations that are due within the next month. Equipment is classified as a long-term asset, not a current asset.
Step-by-step explanation:
Assets and liabilities are classified as current and long-term for liquidity analysis purposes used primarily by banks. This classification helps banks assess their short-term and long-term financial position, which is crucial for managing liquidity and making informed lending decisions.
For example, current liabilities are those debts and obligations that are due within the next month. These include short-term loans, credit card payments, and accounts payable. Current assets, on the other hand, are those assets that can be easily converted into cash within a year, such as cash, inventory, and accounts receivable. Equipment is not usually considered a current asset because it has a longer useful life and is not typically liquid. Instead, it is classified as a long-term asset on a balance sheet. Long-term assets are those that are expected to provide value for more than one year, such as buildings, machinery, and vehicles.