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.
five groups of current assets: • cash and cash equivalents, • marketable securities, • accounts receivable, • inventories, and • prepaid expenses.
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 )
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
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.
methodsofinventoryassessment • The first-in, first-out (FIFO) method • The last-in, first-out (LIFO) method • The average-cost method • The specific identification method
The first-in, first-out (FIFO) method assumes that the costs of the first items acquired should be assigned to the first items sold. Assume that 48 units were sold during the year and 32 units remain on hand at year-end.
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.
The average-cost method calculates the weighted-average cost of an inventory item on hand during the period and applies this cost to the units sold and to the ending inventory. Average cost = Cost of goods available for sale / Number of units available for sale • = (30*$4+10*$5+20*$6+20*$8)/(30+10+20+20) = = $450 / 80 = $5.625 • Cost of goods sold = $5.625 * 48 = $270 • Ending inventory = $5.625 * 32 = $180
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.
Prepaid expense is 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.
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.
Typical discount terms are 2/10, net 30.This indicates that a 2% discount will be granted if payment is made within 10 days of sale; otherwise, full payment is due within 30 days of sale. • Terms of the agreement 5 /20, net 40 date - June 1. Identify the last date of payment for the customer to obtain discounts.