Current Assets & Liabilities

Question 1

What is a current asset?

Answer 1

Cash + Other assets that are expected to be SOLD or CONVERTED during the current operating cycle.
Includes: demand deposits, cash equivalents, A/R, inventory, pre-paids and ST Investments

Question 2

What is a current liability?

Answer 2

A liability expected to be PAID in 12 months or less

Question 3

How is the Quick Ratio calculated?

Answer 3

(Cash + A/R + Trading Securities) / Current Liabilities

Question 4

How is the Current Ratio calculated?

Answer 4

Current Assets / Current Liabilties

Question 5

How is A/R Turnover calculated?

Answer 5

Credit Sales / Avg. A/R (beg & end A/R / 2)

Question 6

How is Inventory Turnover calculated?

Answer 6

COGS / Avg. Inventory (beg & end Inv / 2)

Question 7

How is Day Sales in Inventory calculated

Answer 7

365 / Inventory Turnover (must calculate turnover first)

Question 8

How is Days to Collect A/R calculated?

Answer 8

Avg. A/R / Avg. Sales per Day

Question 9

How are gain contingencies recorded?

Answer 9

They are NOT accrued due to Conservatism

Question 10

When are loss contingencies recorded?

Answer 10

If PROBABLE - they are accrued (if estimable) and disclosed. If Reasonably Possible - they are disclosed. If Remote - don’t accrue or disclose.