Current Assets & Liabilities (Current Assets (Cash plus other assets…
Current Assets & Liabilities
Cash plus other assets that are expected to be sold or converted to cash during the current operating cycle
Original maturity < 3 months, anything more is NOT cash equivalent
Exam Tip: Don't let the exam trip you up with some 9-month that matures in 2 months - (Not a Cash equivalent)
Expected to be paid within 12 months of less........
How much capital you have?
Asset - Liabilities, but current
Current Assets - Current Liabilities
Liabilities (used as denominator for three ratios)
(Cash + A/R + Trading Securities) / Current Liabilities
Current Assets / Current Liabilities
365 days / Inventory Turnover
Find out how much inventory is sold within one day
Average A/R / Average Sales Per Day
How much A/R is collected everyday?
Turnover Ratios have the "average of what is being turned over in the denominator
Accounts Receivable Turnover
Credit Sales/Average A/R
Don't need to accrue or disclose
No need to Accrue
But need to Disclose
Accrue (if estimable)
Don't accrue because Conservatism