Vol. 3 LM2 Current and Non-Current Classification Flashcards
Classification
Assets that are held primarily for the purpose of trading or that are expected to be sold, used up, or otherwise realized in cash within one year or one operating cycle of the business, whichever is greater, after the reporting period
Components of the Balance Sheet
Current assets
Components of the Balance Sheet
Define
current assets
Components of the Balance Sheet
(1) Assets that are held primarily for the purpose of trading; or,
(2) That are expected to be sold, used up, or otherwise realized in cash
Within one year or one operating cycle
Components of the Balance Sheet
Classification
The average amount of time that elapses between acquiring inventory and collecting the cash from sales to customer
Components of the Balance Sheet
Company’s operating cycle
Components of the Balance Sheet
Define
(company) operating cycle
Components of the Balance Sheet
The average amount of time that elapses between acquiring inventory and collecting the cash from sales to customer
Components of the Balance Sheet
Classification
When an entity’s normal operating cycle is not clearly identifiable:
Components of the Balance Sheet
The duration of an entity’s normal operating cycle is assumed to be one year
Components of the Balance Sheet
List examples
Companies that may have operating cycles longer than one year
Components of the Balance Sheet
companies in the tobacco, distillery, and lumber industries
Components of the Balance Sheet
Classification
Inventories expected to be sold within one operating cycle even though these inventories may be held for more than one year
Components of the Balance Sheet
Current assets
Components of the Balance Sheet
Define
(for a manufacturer) operating cycle
Components of the Balance Sheet
the average amount of time between acquiring raw materials and converting these into cash from a sale
Components of the Balance Sheet
explanation
Companies that hold inventories longer than one year, but still classify these inventories as current assets
Components of the Balance Sheet
Because these inventories are expected to be sold within one operating cycle
Components of the Balance Sheet
Classification
Assets not expected to be sold or used up within one year or one operating cycle, whichever is greater
Components of the Balance Sheet
Non-current assets (long-term, long-lived assets)
Components of the Balance Sheet
Define
Non-current assets
Components of the Balance Sheet
Assets not expected to be sold or used up within one year or one operating cycle, whichever is greater
Components of the Balance Sheet
Classification
Provide information about the operating activities and the operating capability of the entity.
Components of the Balance Sheet
Current assets
Components of the Balance Sheet
Classification
Represent the infrastructure from which the entity operates and are not consumed or sold in the current period
Components of the Balance Sheet
Non-current assets
Components of the Balance Sheet
Classification
Liabilities expected to be settled within one year or within one operating cycle, whichever is greater, after the reporting period
Components of the Balance Sheet
Current liabilities
Components of the Balance Sheet
Classification
Specific criteria of a liability as current
Components of the Balance Sheet
Specific criteria
(1) It is expected to be settled in the entity’s normal operating cycle
(2) It is held primarily for the purpose of being traded
(3) It is due to be settled within one year after the balance sheet date; or,
(4) The entity does not have an unconditional right to defer settlement of the liability for at least one year after the balance sheet date
Components of the Balance Sheet
