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Flashcards in Current Assets & Liabilities Deck (49)
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1

What is a current asset?

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

2

What is a current liability?

A liability expected to be paid within 12 months or less

3

How is the Quick Ratio calculated?

(Cash + A/R + Trading Securities) / Current Liabilities

4

How is the Current Ratio calculated?

Currents Assets / Current Liabilities

5

How is Working Capital calculated?

Currents Assets - Current Liabilities

6

How is A/R Turnover calculated?

Credit Sales / Average A/R

7

How is Inventory Turnover calculated?

COGS / Average Inventory

8

How is Day Sales in Inventory calculated?

365 / Inventory Turnover

9

How is Days to Collect A/R calculated?

Average A/R / Average Sales per Day

10

How are gain contingencies recorded?

They are NOT accrued due to Conservatism

11

When are loss contingencies recorded?

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

If Reasonably Possible - they are disclosed

If Remote - don't accrue or disclose

12

Recording legally restricted or segregated cash

As long term asset - Investment

13

Treatment of unmarked check

Not deducted from cash balance

14

Treatment of overdrawn bank balance

Presented as current liability unless other accounts at same bank have sufficient cash

15

Examples of credits to AR

Sales returns, write-offs, collections

16

Treatment of interest from note receivable

Included as current asset in interest receivable

17

Calculate interest receivable

Face value x stated rate x time

18

Calculate interest revenue

Carrying amount x effective rate x time

19

Treatment of accounting loss

Cannot exceed the amount of AR recognized as an asset

20

Basis of aging receivables method of I collectible accounts

Theory that bad debts are function of AR collections during the period

21

Treatment of previously written of bad debts

1. DR - AR ; CR - allowance for doubtful accounts

2. DR - Cash ; CR - AR

22

What is an assignment

Owner obtains loan by pledging receivable

23

What is factoring

Sale of receivables

24

Treatment of factored receivables and control surrendered

Treat as sale, risk of uncollectible accounts not retained by seller without recourse

25

Calculate cash for factoring

Ar - holdback - fee - interest expense ( AR x rate x avg days / 365

26

What is financial component approach

Seller has continued involvement, reduce AR, recog asset obtained and liabilities incurred, record g/l

DR - cash , holdback , loss
CR - AR , recourse liability at FV

27

What is due from factor (holdback)

Account for probable sales discounts, returns, allowances.

28

What is recourse liability

Recorded to indicate probable uncollectibles

29

When is sale of receivables recognized?

1. Receivables beyond reach of transferor and transferors creditors
2. Transferor has no repurchase agreement
3. Tranferee can resell or pledge receivables

30

How should serving assets and liabilities be amortized?

In proportion to and over period of estimated net servicing income or net servicing loss