Wiley GAAP: Practical Implementation Guide and Workbook

Chapter 7. CASH, RECEIVABLES, AND PREPAID EXPENSES (ASC 305, 310, 860)

BACKGROUND AND INTRODUCTION

Assets displayed on the statement of financial position are the resources available to the reporting entity to support its current and future operations.

To provide information about liquidity, the assets often are divided into current and noncurrent assets.

• When the normal operating cycle is less than one year, a one-year period is used to distinguish current assets from noncurrent assets.

• If the operating cycle exceeds one year, the operating cycle is the proper period to use for current asset identification.

Current assets consist of cash and other assets (e.g., short-term investments, receivables, inventory, and prepaid expenses) that are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business.

DEFINITIONS OF KEY TERMS

(in accordance with ASC 305, 310, and 860)

Accounts receivable. Amounts due from customers for goods or services provided in the normal course of business operations.

Aging the accounts. Computation of the adjustment for uncollectibility of accounts receivable outstanding at the end of the period based upon the length of time the accounts have been unpaid.

Cash. Coins and currency on hand and balances in checking accounts available for immediate withdrawal.

Cash equivalents. Short-term, highly liquid investments that are readily convertible to known amounts of cash and are so near their maturity that they present negligible ...