Final answer:
The income statement can be prepared using the multistep or report format. The balance sheet must be prepared using the account format. Liabilities are classified on the balance sheet and current assets are the most liquid assets.
Step-by-step explanation:
When preparing the financial statements of a company, it is true that the income statement can be prepared using either the multistep or report format. The multistep format is often used for more detailed and complex income statements, while the report format is simpler and summarizes the information.
The balance sheet, on the other hand, must always be prepared using the account format. This format presents the assets, liabilities, and equity of a company in a structured manner.
Liabilities are classified on the balance sheet. They are typically grouped into short-term and long-term liabilities, and further categorized based on their nature or purpose.
Current assets are indeed the most liquid assets. These are assets that are expected to be converted into cash within a relatively short period of time, typically within one year. Examples of current assets include cash, accounts receivable, and inventory.