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Current Assets
Current assets are held for only a short time with the intention of turning them into cash in the ordinary course of business. Current assets are real, monetary assets that have a life of one year or less than one year before they are converted into cash. The only exception to the one-year rule is in the case of debtors which are due for repayment later than one year. Current assets are normally classified as: Inventories. In case of a manufacturing company it could be raw materials and components; work-in-progress, that is partly made products; and finished stocks due for sale. In trading business, the only stock held will be bought-in goods for resale.The flow from raw materials, through work-in-progress to finished goods may be shown as the following sequence:
Receivables (debtors) are outstanding customer accounts due to be paid to the business. Most businesses sell their goods on credit. This means that when goods are delivered they are invoiced to the customer and the customer normally has an agreed period to make payment.Marketable securities represent idle cash that is not needed immediately, but may be needed on short notice. Cash is the most liquid asset of all. It includes cash on hand, current account balances and short-term deposits held with banks. An example of the layout of different current assets is given below. In this layout the current assets begin with the least liquid asset (stock) shown first going down to the most liquid asset of all (cash):
A different layout is possible, when current assets are listed on the balance sheet in order of their liquidity, where cash, the most liquid asset of all, comes first. Read the text. Decide whether these statements are TRUE, FALSE or NOT STATED. Choose the correct form of the verb: Fill in the correct prepositions.
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