Question

In my class we are being asked to respond to answers to questions that others have posted. I need help with a response to the answer below. Any help you can give me would be appreciated. I also MUST HAVE a reference to anything I post so if you could help with a reference that would be so helpful! Thank you!

“Current assets are assets that a company plans to convert into cash within one year or the company’s operating cycle, whichever is longer.” (Kimmel, Weygandt 2017) “A current liability is a debt that a company can reasonably expect to pay (a) from existing current assets or through the creation of other current liabilities and (b) within one year or the operating cycle, whichever is longer.”(Kimmel, Weygandt 2017) Both long-term assets and liabilities are considered non-current because they will not be effective until the next operating year. It is important that a company distinguishes current from long-term to take a closer look at things such as the debt paying ability of the company. The distinguishing facts of current assets to current liabilities helps determine working capital. There are a lot of reasons that classification of current and long-term assets and liabilities are important. Not only does it make things easier for the company it makes it easier for the people who rely on these to do their jobs proficiently.

Answer 1

>>Short-term assets are those assets that are either short-term investments or other tangible assets that have a recovery cycle ranging from 3-12 months. Some common examples of short-term assets are certificates of deposits, money market accounts, treasuries, bonds funds, municipal funds, peer to peer lending, and much more.

Companies with a strong cash flow position will have short-term investments account on their balance sheet which implies that the company can afford to invest additional cash in stocks and shares, bonds, or cash equivalents to earn a higher rate of interest than what it would have earned from a normal savings account.

These are highly liquid assets that are used as a temporary parking space for cash. Short-term assets are divided into various types.

>>A current liability is one the company expects to pay in the short term using assets noted on the present balance sheet.

Typical current liabilities include accounts payable, salaries, taxes and deferred revenues (services or products yet to be delivered but for which money has already been received).

On the financial statement, information about the solvency of a company can be determined through assessing its liabilities and its ability to settle those obligations.

>>Long term assets:

Assets are those financial investments that will benefit the company in the long-run. These investments are usually recorded at their historical value in the book’s accounts and can be either tangible or intangible. Some of the common types of fixed assets are:

PP&E: PP&E stands for Plant, Property, and Equipment these are vital for any business operations and cannot be easily converted into cash.

These are tangible by nature and are used for converting into Equity. Purchase of fixed assets is considered a positive sign by many investors as they believe that the management has a long-term positive outlook of business existence. Such assets are generally amortized at the end of their lives, after applying depreciation.

Hence, generally, when representing such assets they are recorded at their historical value with accumulated depreciation deducted at the end of the life of such assets after taking into account the expenditure that has taken place to keep the asset running for the benefit of the business.

>>Long-term liabilities

A long-term liability is one the company expects to pay over the course of more than one year.

Long-term liability is usually formalized through paperwork that lists its terms such as the principal amount involved, its interest payments, and when it comes due. Typical long-term liabilities include bank loans, notes payable, bonds payable and mortgages.

References>>

Markle, K. (2004, August). Introduction to Accounting. Presentation delivered at Schulich School of Business, York University, Toronto, Canada.

Pratt, Jamie. (2003). Financial Accounting in an Economic Context. New York: John Wiley & Sons. pp. 42-43, 757.

https://www.jstor.org/stable/2296724

https://www.emerald.com/insight/content/doi/10.1108/00251740410518516/full/html