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Assets

Current assets are defined as those expected to be realized or consumed within the entity's operating cycle, held for trading, or convertible to cash within twelve months. Examples include cash, cash equivalents, marketable securities, trade receivables, inventories, prepaid expenses, and contra-asset accounts. These assets are crucial for assessing a company's liquidity and ability to meet short-term obligations.

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10 views

Assets

Current assets are defined as those expected to be realized or consumed within the entity's operating cycle, held for trading, or convertible to cash within twelve months. Examples include cash, cash equivalents, marketable securities, trade receivables, inventories, prepaid expenses, and contra-asset accounts. These assets are crucial for assessing a company's liquidity and ability to meet short-term obligations.

Uploaded by

binibiningalexa15
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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ASSETS

Classification of Current Assets

Classify an asset as current asset when it is:


• Expected to be realized in or intended for sale or consumption in the
entity’s normal operating cycle;
• Held primarily for the purpose of being traded;
• Expected to be realized within twelve months of the balance sheet
date; or
• Cash or a cash equivalent unless it is restricted from being exchanged
or used to settle a liability for at least twelve months after the balance
sheet date.
Examples of current assets are
as follows:
1. Cash includes coins, currencies, checks, bank deposits, and other cash items
readily available for use in the operations of the business.
2. Cash equivalents are short-term investments that are readily convertible to
known amounts of cash which are subject to an insignificant risk to changes in
value.
Cash equivalents, also known as "cash and equivalents," are one of the three main
asset classes in financial investing, along with stocks and bonds. These securities have a low-
risk, low-return profile and include U.S. government Treasury bills, bank certificates of deposit,
bankers' acceptances, corporate commercial paper, and other money market instruments.
Cash equivalents are the total value of cash on hand that includes items that are similar
to cash; cash and cash equivalents must be current assets.
Having cash and cash equivalents on hand speaks to a company's health, as it reflects
the firm's ability to pay its short-term debt.
Examples of current assets are
as follows:
3. Marketable securities are stocks and bonds purchased by the enterprise
and are to be held for only a short span of time or duration. They are usually
purchased when a business has excess cash.
Marketable securities are liquid financial instruments that can be quickly converted into
cash at a reasonable price. The liquidity of marketable securities comes from the fact that
the maturities tend to be less than one year, and that the rates at which they can be
bought or sold have little effect on prices.
• Marketable securities are assets that can be liquidated to cash quickly.
• These short-term liquid securities can be bought or sold on a public stock exchange or a
public bond exchange.
• These securities tend to mature in a year or less and can be either debt or equity.
• Marketable securities include common stock, Treasury bills, and money market
instruments, among others.
Examples of current assets are
as follows:
4. Trade and other receivables include the amounts collectible from any of
the following accounts;
a. accounts receivable – amount collectible from the customer to whom
sales have been made or services have been rendered on account or credit.
b. notes receivable – promissory note issued by the or the customer in
exchanged for services or goods received as evidence of his/her obligation to
pay.
c. interest receivable – amount of interest collectible on promissory notes
received from customers and clients.
d. advances to employees – certain amount of money loaned to employees
payable in cash or through salary deductions.
e. accrued income – income already earned but not yet received.
Examples of current assets are
as follows:
5. Inventories represent the unsold goods at the
end of the accounting period. This is applicable only
to a merchandising business.
6. Prepaid Expenses – include supplies bought for
use in the business or services and benefits to
receive by the business in the future paid in
advance.
Examples of current assets are
as follows:
7. Contra-Asset Accounts are accounts deducted from the related
asset accounts.
a. Allowance for bad debts- losses due to uncollectible accounts. This
is deducted from the accounts receivable account to get the net
realizable value. This is in line with the financial statements qualitative
characteristic of conservatism wherein no profits would be anticipated
but all probable or estimable losses should be provided.
b. Accumulated depreciation- represents the expired cost of property,
plant, and equipment as a result of usage and passage of time. This is
deducted from the cost of the related asset account to get the
carrying value or book value of the asset.

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