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Current Assets & Liabilities (Current Assets (Cash plus other assets…
Current Assets & Liabilities
Current Assets
Cash plus other assets that are expected to be sold or converted to cash during the current operating cycle
Demand Deposits
Cash Equivalents
Short Term
Very Liquid
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)
Accounts Receivable
Inventory
Prepaids
Short-term Investments
Current Liablities
Expected to be paid within 12 months of less........
Ratios
Working Capital
How much capital you have?
Asset - Liabilities, but current
Current Assets - Current Liabilities
Liabilities (used as denominator for three ratios)
Quick Ratio
(Cash + A/R + Trading Securities) / Current Liabilities
Current Ratio
Current Assets / Current Liabilities
Days Sales
Inventory
365 days / Inventory Turnover
Find out how much inventory is sold within one day
Collecting A/R
Average A/R / Average Sales Per Day
How much A/R is collected everyday?
Turnover note
Turnover Ratios have the "average of what is being turned over in the denominator
Accounts Receivable Turnover
Credit Sales/Average A/R
Inventory Turnover
COGS/Average Inventory
Contingencies
Loss
Remote?
Don't need to accrue or disclose
Reasonably Possible?
No need to Accrue
But need to Disclose
Probable?
Accrue (if estimable)
Must Disclose
Gain
Don't accrue because Conservatism