Module 22.3: Current Assets & Liabilities Flashcards
What is a current asset?
asset that will be converted into cash in 1 operating cycle or one year, whichever is greater.
What is the operating cycle?
time it takes to produce or purchase inventory, sell the product, and collect the cash.
What are current liabilities?
obligations that will be satisfied within one year or one operating cycle, whichever is greater.
What is working capital? What does too much or too little working capital imply?
Current assets - current liabilities.
Too much - not efficient use of assets
Too little - may indicate liquidity problems
In what measurement are cash & cash equivalents held on the balance sheets?
amortized cost or fair value, each measurement should result in about the same value.
What are marketable securities how are they measured on the balance sheets?
financial assets that are traded in public and whose value can be readily determined. Various ways in which they can be recorded on the balance sheet.
How is accounts receivable reported on the balancer sheets?
net realizable value, which is accounts receivable - bad debt expense.
What costs are included in inventory?
purchase cost, conversion cost, and other costs to bring the inventory to its present location and condition.
What is standard costing and retail method for inventory measurement?
standard costing - involves assigning predetermined amounts of materials, labor, and overhead to goods produced.
retail method - measure inventory at retail prices and then subtract gross profit in order to determine cost.
How are inventories reported at IFRS?
The lower of cost or net realizable value
net realizable value = selling price less any completion costs and disposal costs.
How are inventories reported at US GAAP?
Other than LIFO and retail - the lower of cost or net realizable value
If LIFO or retail - the lower of cost or market.
market = usually equal to replacement cost, cannot be greater than net realizable value or less than net realizable value less a normal profit margin.
If net realizable value (IFRS) or market (GAAP) are lower than the inventory’s carrying value, what happens? Can it be reversed?
the inventory is written down and a loss is recognized on the income statement. If there is subsequent recovery, the inventory can be written up under IFRS, but not GAAP (just a greater profit is sold).
What are prepaid expenses?
operating costs that have been paid in advance. As costs are incurred, there is a deduction to the prepaid expenses account.
What are accrued liabilities? What are some example of the accounts?
expenses that have been recognized on the income statement but are not yet contractually due.
Taxes payable, interest payable, wages payable, and accrued warranty expense.
What is unearned revnue?
cash collected in advance of providing goods & services.
