Current Assets & Liabilities Flashcards
What is a current asset?
Cash plus other assets that are expected to be sold or converted to cash during the current operating cycle
Includes: Demand deposits, cash equivalents, accounts receivable, inventory, pre-paids, and short-term investments
What is a current liability?
A liability expected to be paid within 12 months or less
How is the Quick Ratio (Acid-Test Ratio) calculated?
(Cash + A/R + Trading Securities) / Current Liabilities
How is the Current Ratio calculated?
Currents Assets / Current Liabilities
How is Working Capital calculated?
Currents Assets - Current Liabilities
How is A/R Turnover calculated?
Credit Sales / Average A/R
How is Inventory Turnover calculated?
COGS / Average Inventory
How is Day Sales in Inventory calculated?
365 / Inventory Turnover
How is Days to Collect A/R calculated?
Average A/R / Average Sales per Day
How are gain contingencies recorded?
They are NOT accrued due to Conservatism
When are loss contingencies recorded?
If Probable - they are accrued (if estimable) and disclosed
If Reasonably Possible - they are disclosed
If Remote - don’t accrue or disclose
Calculate Ending Accounts Receivables
BAR + Sales - Collections (RWOCC) = EAR
Beginning Accounts Receivable (BAR) + Sales - Collections (Returns, Write offs, Customer Collections) = Ending Accounts Receivables
How calculate Allowance for Discounts
Receivable is age category x Percent taking discount x discount rate
What is a write off
To write off is to remove an amount from the accounting records, usually by a corresponding entry to an expense or allowance account, as to write off a specific account receivable with a credit to accounts receivable and a debit to the allowance for uncollectible accounts.
