2. Current assets are cash and
other assets that a company
can reasonably expect to
convert to cash, sell, or
consume within one year or its
normal operating cycle.
3. FIVE GROUPS OF CURRENT
ASSETS:
cash and cash equivalents,
marketable securities,
accounts receivable,
inventories, and
prepaid expenses.
4. CASH AND CASH EQUIVALENTS:
cash on hand (petty cash funds, change funds)
cash on deposit in bank accounts (accounts for
payroll, foreign currency accounts)
cash equivalents (short-term, highly liquid
investments: certificates of deposit, treasury bills,
and commercial paper )
5. ACCOUNTS RECEIVABLE ARE THE SHORT-
TERM FINANCIAL ASSETS OF A WHOLESALER
OR RETAILER THAT ARISE FROM SALES ON
CREDIT.
trade credit - from 5 to 60 days
6. INVENTORY
Supplies (Raw materials) - materials and
components scheduled for use in making a product.
Work in process, WIP - materials and components
that have begun their transformation to finished
goods.
Finished goods - goods ready for sale to
customers.
Goods for resale - returned goods that are salable.
7. METHODS OF INVENTORY ASSESSMENT
The first-in, first-out (FIFO) method
The last-in, first-out (LIFO) method
The average-cost method
The specific identification method
8. THE FIRST-IN, FIRST-OUT (FIFO) METHOD
ASSUMES THAT THE COSTS OF THE FIRST ITEMS
ACQUIRED SHOULD BE ASSIGNED TO THE FIRST
ITEMS SOLD.
Assume that 48 units were sold during the year and 32 units
remain on hand at year-end.
9. THE LAST-IN, FIRST-OUT (LIFO) METHOD OF
COSTING INVENTORIES ASSUMES THAT THE
COSTS OF THE LAST ITEMS PURCHASED
SHOULD BE ASSIGNED TO THE FIRST ITEMS
SOLD AND THAT THE COST OF ENDING
INVENTORY SHOULD REFLECT THE COST OF
THE GOODS PURCHASED EARLIEST.
10.
11. THE AVERAGE-COST METHOD CALCULATES THE
WEIGHTED-AVERAGE COST OF AN INVENTORY ITEM
ON HAND DURING THE PERIOD AND APPLIES THIS
COST TO THE UNITS SOLD AND TO THE ENDING
INVENTORY.
Average cost = Cost of goods available for sale /
Number of units available for sale
= (30*$4+10*$5+20*$6+20*$8)/(30+10+20+20) =
= $450 / 80 = $5.625
Cost of goods sold = $5.625 * 48 = $270
Ending inventory = $5.625 * 32 = $180
12. The specific identification method
identifies the cost of each item in
ending inventory.
The specific identification method
may appear logical, and it can be
used by companies that deal in
high-priced articles, such as works
of art, precious gems, or rare
antiques.
13. Prepaid expense is an asset used to
enable cash paid out to a counterpart
for goods or services to be received in
a later accounting period when fulfilling
the promise to pay is actually
acknowledged, the related expense
item is recognized, and the same
amount is deducted from
prepayments.
14. Accounts receivable also known as Debtors, is
money owed to a business by its clients
(customers) and shown on its Balance Sheet as an
asset.
15. Typical discount terms are 2/10, net 30.This
indicates that a 2% discount will be granted if
payment is made within 10 days of sale;
otherwise, full payment is due within 30 days of
sale.
Terms of the agreement 5 /20, net 40 date - June 1.
Identify the last date of payment for the customer to
obtain discounts.