part 1. Current Assets & Liabilities & ratios

Question 1

What is a current asset?

Answer 1

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

Question 2

What is a current liability?

Answer 2

A liability expected to be paid within 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

Currents Assets / Current Liabilities

Question 5

How is Working Capital calculated?

Answer 5

Currents Assets - Current Liabilities

Question 6

How is A/R Turnover calculated?

Answer 6

Credit Sales / Average A/R

Question 7

How is Inventory Turnover calculated?

Answer 7

COGS / Average Inventory

Question 8

How is Day Sales in Inventory calculated?

Answer 8

365 / Inventory Turnover

Question 9

How is Days to Collect A/R calculated?

Answer 9

365/ Accounts receivable turnover

Question 10

How are gain contingencies recorded?

Answer 10

They are NOT accrued due to Conservatism
gain contingencies: a possible occurrence of a gain on a claim or obligation involving the entity. they are reported when realized (earned)

Question 11

When are loss contingencies recorded?

Answer 11

If Probable - they are accrued (if estimable) and disclosed

If Reasonably Possible - they are disclosed

If Remote - don’t accrue or disclose