What are the current liabilities & current Assets
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Answer Posted / gayatri
Current Assets. For accounting purposes, the term current
assets is used to designate cash and other assets or
resources commonly identified as those which are reasonably
expected to be realized in cash, or sold or consumed during
the normal operating cycle of the business. Thus, the term
comprehends in general such resources as:
1.cash available for current operations and items which
are the equivalent of cash,
2.inventories of merchandise, raw materials, goods in
process, finished goods, operating supplies, and ordinary
maintenance material and parts,
3.trade accounts, notes, and acceptances receivable,
4.receivables from officers, employees, affiliates, and
others, if collectible in the ordinary course of business
within a year,
5.installment or deferred accounts and notes receivable,
if they conform generally to normal trade practices and
terms within the business,
6.marketable securities representing the investment of
cash available for current operations, and
7.prepaid expenses such as insurance, interest, rents,
taxes, unused royalties, current paid advertising services
not yet received, and operating supplies.
Prepaid expenses are not current assets in the sense that
they will be converted into cash, but in the sense that, if
not paid in advance, they would require the use of current
assets during the operating cycle.
Current Liabilities. The term current liabilities is used
principally to designate obligations whose liquidation is
reasonably expected to require the use of existing resources
properly classifiable as current assets, or the creation of
other current liabilities. As a balance-sheet category, the
classification is intended to include:
1.obligations for items which have entered into the
operating cycle, such as payables incurred in the
acquisition of materials and supplies to be used in the
production of goods or performance of services, and
2.debts which arise from operations directly related to
the operating cycle, such as accruals for wages, salaries,
commissions, rentals, royalties, and income and other taxes.
Other liabilities whose regular and ordinary liquidation is
expected to occur within a relatively short period of time,
usually twelve months, are also intended for inclusion.
Examples are:
1.short-term debts arising from the acquisition of
capital assets,
2.serial maturities of long-term obligations,
3.amounts required to be expended within one year under
sinking fund provisions, and
4.agency obligations arising from the collection or
acceptance of cash or other assets for third-person accounts.
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