1. How are current liabilities related by definition to current assets? How are current liabilities related...
1. How are current liabilities related by definition to current assets? How are current liabilities related to a company’s operating cycle?
2. How does unearned revenue arise? Why can it be classified properly as a current liability? Give three examples of business activities that result in unearned revenues.
Homework Answers
1)Relation of current asset and current liabilities is defined by current ratio.
Current ratio = Current asset/Current liabilities
Relation of operating cycle with Current liabilities
Operating cycle is period from acquisition of goods till realization from receivables.
Current Liabilities are settled by use of current assets. Current liabilities are those liabilities which are due to be paid in operating cycle or one year whichever is longer.
2)Unearned revenue is revenue which is collected but not earned.It is not recognized as revenue of current period but shown as current liability in balance sheet.If it is shown in income statement of current year then matching principle violated and profit will be overstated.
It is classified as current liability since it is normally earned with in one year.
Activities arise unearned revenue
- Hotel -Rent received in advance
- Insurance company-Insurance premium received in advance
- Stadium- Unearned ticket revenue
Add Answer to:
1. How are current liabilities related by definition to current
assets? How are current liabilities related...
How does unearned revenue arise? Why can it be classified properly as a current liability? Give...
How does unearned revenue arise? Why can it be classified properly as a current liability? Give three examples of business activities that result in unearned revenues.
How are current liabilities related by definition to current assets? How are current liabilities related to...
How are current liabilities related by definition to current assets? How are current liabilities related to a company’s operating cycle?
How are current liabilities related by definition to current assets? How are current liabilities related to...
How are current liabilities related by definition to current assets? How are current liabilities related to a company’s operating cycle?
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