September 25, 2010
University of Phoenix
Comparing and contrasting current and noncurrent
What are current assets?
Current assets are also known as liquid assets. The most common of current assets can be found in the Accounts Receivables department. They can be found in the form of invoices. Current assets are any assets that can be turned into cash in less than a year. Other forms of current assets are things such as inventory, short-term investments, prepaids, and, of course, cash (Williams, Haka, & Bettner, 2005).
As a rule, companies view current assets as anything that can be converted into cash within an operating cycle. For most companies that is a year. Other companies have an operating cycle of more than a year, other less than a year. It is mostly dependent upon their operating cycle.
What are noncurrent assets?
Noncurrent assets are anything that is not a current asset. Things such as long-term investments, intangible assets, and fixed assets. A noncurrent asset is something that cannot be turned in cash within a normal operating cycle (Williams, Haka, & Bettner, 2005).
What differs between current and noncurrent assets?
The biggest difference between current and noncurrent assets is that one can be converted into cash within a normal operating cycle, current assets, and the other cannot, noncurrent assets. As stated before current assets can be sold off to give the company operating cash to prevent the company from being insolvent (Williams, Haka, & Bettner, 2005). Noncurrent assets can be used as collateral to attain a loan, I think.
What is the order of liquidity?
The order of liquidity is the order in which items appear on the balance sheet according to its solvency (Williams, Haka, & Bettner, 2005). This way a person looking at a balance sheet will know what will sell faster to raise money for the company should the need arise.
How does the order of liquidity apply to the balance sheet?
The order of liquidity on a balance sheet appears in the order according to the items closeness to cash (Williams, Haka, & Bettner, 2005). With cash being the first item on most balance sheets followed by investments in marketable securities, receivables, inventory, and prepaid expenses (Williams, Haka, & Bettner, 2005).
Williams, J.R., Haka, S.F., & Bettner, M.S. (2005). Financial and Managerial Accounting: The Basis for Business Decisions (13th ed.). New York, New York: McGraw−Hill.
|Content and Organization |Percent |Comments: | |70 Percent |Earned: | | | | | | |All key elements of the assignment are covered in a substantive way. | | | |What are current assets? | |You correctly addressed the | |What are noncurrent assets? | |points, but your responses were | |What differs between current and noncurrent assets? | |too brief. | |What is the order of liquidity? | | | |How does the order of liquidity apply to the balance sheet? | | | | | |...