ACC400_Wk1_Current and Noncurrent Assets Paper
ACC400_Wk1_Current and Noncurrent Assets Paper
CSU - Dominguez hills
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Date Created: 11/16/15
Current and Noncurrent Assets Paper 1 Running Head Current and Noncurrent Assets Paper Current and Noncurrent Assets Paper ltNamegt ACC400 Week One Instructor s Name ltNamegt ltDategt Current and Noncurrent Assets Paper 2 Introduction Current and noncurrent assets are important items to evaluate a balance sheet The following paper evaluates the meaning and differences between current and noncurrent assets In addition to that the paper Will describe the order of liquidity and its application in a balance sheet A company s balance sheet includes both current and noncurrent assets The current assets are defined as the total sum of 0 Cash and cash equivalents Cash in hand or cash at bank 0 Accounts receivables Amount that is expected to be collected from the customers Within the current accounting cycle 0 Inventory Goods or material instock or under processing Which can be sold and converted into cash 0 Marketable securities Very liquid securities that can be converted into cash Within a short period of time example commercial paper and treasury bills etc 0 Prepaid expenses Goods or services that are realized over a period of time but are paid in bulk at the beginning of accounting cycle 0 Other current assets Current Assets also include any other type of asset that could be liquidated in less than one year or the operating cycle InvestorWordscom 2010 These assets are important for the company to meet its daily operational expenses also the creditors of a company are often interested in evaluating current assets because these assets can be easily converted into cash to pay debts or in case the company goes bankrupt Noncurrent assets on the other hand is the sum of fixed assets intangible items and leasehold improvements Which are more permanent in nature they cannot be easily convertible into cash or are not expected to get converted into cash sold or exchanged Within the next year Current and Noncurrent Assets Paper 3 or operating cycle of the company Stocks300 2010 Common examples of noncurrent assets are real estate machinery goodwill patents and trademarks Current vs Noncurrent Assets Current Assets Noncurrent Assets Nonpermanent and moving in nature Permanent and nonmoving in nature Can be easily converted into cash or are Cannot be easily liquefied and are not expected expected to convert into cash Within next to convert into cash sales or exchange in the operating cycle next operating cycle Order of liquidity Order of liquidity is a method to organize the balance sheet in a proper readable format Which can be easily understood by the management The term liquidity refers to the degree of ease and expectation that an item can be converted into cash at close to its current value by selling leasing or exchanging Within the next year or operating cycle By using order of liquidity the accountant lists the items in the decreasing order of their liquidity Within the same accounting group With cash at the top in the list of assets The importance of order of liquidity can be understood by the fact that the assets and liabilities are divided into current and longterm subgroups With items of similar liquidity scale kept together Anonymous 2008 An example of order of using order of liquidity to group items is given below Assets Current Assets Checking Account Accounts Receivable Fixed Assets Current and Noncurrent Assets Paper 4 Office Equipment Office Furniture The order of liquidity not only makes the balance sheet easy to understand and evaluate but it also gives valuable information to the creditors and shareholders about the financial health of the company Using this method the financial analyst can predict how to generate quick cash to pay bills or to facilitate organic and nonorganic growth like takeover and mergers amp acquisitions Anonymous 2008 For example when HP acquire EDS the first thing they evaluated was their own and EDS balance sheet and found a way to make this acquisition as beneficial as possible Conclusion The indepth understanding of current and noncurrent assets is not only beneficial for companies to evaluate their financial performance but also for individuals who are looking to gain financial knowledge These are the building blocks of balance sheets and other financial accounts Likewise order of liquidity is an important method to list the assets and liabilities in a userfriendly and easy understandable format This method is extensively used by business analyst shareholders and other stakeholders to analyze the actual performance of the company Current and Noncurrent Assets Paper 5 References Anonymous 2008 Preparing a Balance Sheet Referenced ltDategt from httpwwwva interactivecominbusinesseditorialfinanceintempbalancehtml InvestorWordscom 2010 Current Assets Referenced ltDategt from httpWWWinvestorW0rdscom 1245current assetshtm1 Stocks300 2010 Noncurrent Assets Referenced ltDategt from htt newsmornin starcomc1assroom2courseas docId145091amp a e4ampCNcom
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