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Disclosure Analysis

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  • Feb. 2007
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Disclosure Analysis

A company reports several items in the current asset section of its balance sheet. The basis of those items reported contain the company's cash and cash equivalents, inventories and receivables. Current assets are vital to the operation of a company and are the company's source of readily accessible funding. Lowe's Company, Inc. and subsidiaries ("Lowe's"), a home improvement retail chain store, reported cash and cash equivalents, receivables and inventories in their February 2, 2006 year ending Securities and Exchange Commission ("SEC") Form 10-K/A. The information on this filing was provided by the official SEC website. Cash, "the most liquid of assets, is the standard medium of exchange and the basis for measuring and accounting for all other items" (Kieso, p. 314). A company needs to have the easy access to these funds in order to pay employees, vendors or to fund a new venture. While cash is the most liquid of assets, cash equivalents "are short-term, highly liquid investments that are both readily convertible to known amounts of cash, and so near their maturity that they present insignificant risk of changes in interest rates" (Kieso, p. 317). Typically, anything more than three months from maturity should be categorized in the long-term asset section of the balance sheet. In Lowe's latest 10-K/A, they reported $423,000,000 in cash and cash equivalents. According to the Generally Accepted Accounting Principles ("GAAP"), cash equivalents should be noted within a parenthetical reference or within the notes of the financial statement. Lowe's references to Note 1 of the Consolidated Financial Statements to offer further information regarding the contents of their cash equivalents. Within Note 1, Lowe's reports that they follow the GAAP with regard to their cash and cash equivalents adding that transactions from debit or credit cards process within two business days and are therefore classified as cash and cash equivalents. A...