-Current Assets & Liabilities

Question 1

What is a current asset?

Answer 1

Current assets include cash plus other assets that are expected to be sold or converted to cash during the current operating cycle.

These include:

• Demand deposits
• Cash equivalents
• Accounts receivable
• Inventory
• Pre-paids, and
• Short-term investments

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Question 2

What is a current liability?

Answer 2

Current liability is 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 are the Day Sales in Inventory calculated?

Answer 8

365 / Inventory Turnover

Question 9

How are the Days to Collect A/R calculated?

Answer 9

Average A/R / Average Sales per Day

Question 10

How are gain contingencies recorded?

Answer 10

They are NOT accrued due to Conservatism.

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