CURRENT

ASSETS
CURRENT ASSETS
Current assets are cash and other assets that a company
can reasonably expect to convert to cash, sell, or
consume within one year or its normal operating cycle.

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FIVE GROUPS OF CURRENT ASSETS

Cash and cash equivalents

Marketable securities

Accounts receivable

Inventories

Prepaid expenses

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CASH AND CASH EQUIVALENTS
cash on hand (petty cash funds, change funds)

cash on deposit in bank accounts (accounts for payroll,

foreign currency accounts)

cash equivalents (short-term, highly liquid investments:

certificates of deposit, treasury bills, and commercial paper )

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ACCOUNTS RECEIVABLE
are the short-term financial assets of a
wholesaler or retailer that arise from sales
on credit.

Trade credit - from 5 to 60 days

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INVENTORY
Supplies (Raw materials) - materials and
components scheduled for use in making a
product.

Work in process, WIP - materials and

components that have begun their
transformation to finished goods. Finished
goods - goods ready for sale to customers.

Goods for resale - returned goods that are

salable.

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METHODS OF INVENTORY
ASSESMENT
The First-in, First-out (FIFO) method

The Last-in, First-out (LIFO) method

The Average-cost method

The Specific Identification Method

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INVENTORY ASSESMENT

THE FIRST-IN, FIRST-OUT (FIFO) METHOD

Assumes that the costs of the first items
acquired should be assigned to the first items
sold.

Ex.
Assume that 48 units were sold during the year
and 32 units remain on hand at year-end.

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INVENTORY ASSESMENT

THE LAST-IN, FIRST-OUT (LIFO) METHOD

OF COSTING

Inventories assumes that the costs of the last

items purchased should be assigned to the
first items sold and that the cost of ending
inventory should reflect the cost of the goods
purchased earliest.

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The specific identification method
identifies the cost of each item in ending
inventory. The specific identification
method may appear logical, and it can be
used by companies that deal in high-
priced articles, such as works of art,
precious gems, or rare antiques.

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PREPAID EXPENSE

an asset used to enable cash paid out to a

counterpart for goods or services to be
received in a later accounting period when
fulfilling the promise to pay is actually
acknowledged, the related expense item
is recognized, and the same amount is
deducted from prepayments.

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ACCOUNTS RECEIVABLE

Accounts receivable also known as

Debtors, is money owed to a business by
its clients (customers) and shown on its
Balance Sheet as an asset.

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MARKETABLE SECURITIES

Marketable securities are securities

or debts that are to be sold or redeemed
within a year. These are financial
instruments that can be easily converted
to cash such as government
bonds, common stock or certificates
of deposit.

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