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Financial Accounting: In an Economic Context by Jamie Pratt

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SUMMARY OF KEY POINTS

The key points of the chapter are summarized below.

imageCriteria that must be met before a security can be listed in the current assets section of the balance sheet.

Two criteria must be met before an investment in a security can be listed in the current assets section of the balance sheet: (1) the security must be able to be converted into cash within the time period that defines current assets (i.e., the current operating cycle or one year, whichever is longer), and (2) management must intend to convert the security into cash within the time period that defines current assets.

imageTrading and available-for-sale securities and how the mark-to-market rule is used to account for them.

Trading securities are bought and held principally for the purpose of selling them in the near future with the objective of generating profit on short-term price changes. Investments not classified as trading securities are considered available-for-sale securities. Trading securities are always listed in the current assets section of the balance sheet, while available-for-sale securities are listed as current or long-term, depending on management's intention. In applying the mark-to-market rule to trading and available-for-sale securities, four separate events must be considered.

  1. Purchase ...

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