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1、Unit 6 AssetsCurrent Assets ,. Definition of Current Assets . Current Assets Accounts,2,Assets,Definition: Assets are economic resources that are measurable in monetary terms and owned or controlled by an enterprise for the purpose of making profits. Recognition condition: An asset is recognized on
2、the balance sheet when it is probable that the future economic benefits will flow to the enterprise and the asset has a cost or value that can be reliably measured.,3,. Definition of Current Assets,Current assets are assets that are expected to be converted to cash, sold or consumed within 12 months
3、 or within the businesss normal operating cycle if longer than a year.,Current assets should include cash, short-term investment, receivable, prepayment and inventory.,4,Current assets on the balance sheet represent a companys liquidity. The more cash and short-term investments on hand, the lower a
4、firms risk of failure because management can use the money to carry itself through tough periods.,5,. Current Assets Accounts,1.Assets 101 Cash 102 Accounts Receivable 103 Notes Receivable 104 Office Supplies 105 Equipment 106 Inventory 107 Prepaid Insurance 108 Land 109 Accumulated Depreciation 110
5、Intangible Assets,6,1. Cash,Content Cash includes coins, paper money, checks, money orders, and money in deposit.,Place On balance sheet, cash is listed first among the current assets, because it is the most current and liquid of all assets. Amount Cash and cash equivalents are accounted for accordi
6、ng to the actual amount of receipt and payment.,7,Cash and Cash Equivalents,Cash and Cash Equivalents is the amount of money the company has in bank accounts, savings bonds, certificates of deposit, and money market funds. It tells you how much money is available to the business immediately.,8,Cash
7、is a vital factor in the operation o a business, since many business transaction involve cash. Cash is most subject to theft and fraud. So, strict control over cash should be applied in a business.,There are some cases where cash on the balance sheet isnt necessarily a good thing. The moral: You pro
8、bably wont be able to tell if a company is weak based on cash alone; the amount of debt is far more important.,9,Example,Cingular company conducted the following transactions: (1)Invested $500,000 in the business. (2)Purchased supplies and equipment for $100,000. (3)Performed service for state Corpo
9、ration and received $20,000 a month later.,10,Solution,(1) Dr. Cash 500,000 Cr. Paid-in Capital 500,000 (2) Dr. Supplies and Equipment 100,000 Cr. Cash 100,000 (3) Dr. Accounts Receivable 20,000 Cr. Service Revenue 20,000 Dr. Cash 20,000 Cr. Accounts Receivable 20,000,11,2. Short-term Investments,Wh
10、en there is idle funds, this cash will be invested in short-term marketable securities such as bonds and stocks in order to earn interest, dividend or capital gain. This is outside the normal business operation. Short-term investments refer to investment in marketable securities with certain face va
11、lue, which can be realized at any time and will be held less than a year.,12,Content Bonds or stocks Place Short-term Investments is placed after cash and before Notes Receivable Amount It shall be accounted for at historical cost as obtained and will be shown at book value in accounting statement.,
12、13,(1)Accounts Used,Short-term investment -Bonds Interest Receivable Investment Income,Short-term investment -Stocks Dividend Receivable Investment Income,Bonds,Stocks,14,(2)Calculation Short-term Marketable Securities,1)Purchases of Marketable Securities,Bonds,Stocks,The actual payment should be re
13、corded at the cost of investment including purchase price, brokers fee, handling charge etc.,Dr. Short-term Investment -Bonds 100,000 Cr. Cash 100,000,Dr. Short-term Investment -Stocks 100,000 Cr. Cash 100,000,15,1)Purchases of Marketable Securities,Dr. Short-term Investment -Bonds 60,000 Interest R
14、eceivable 2,000 Cr. Cash 62,000,TJ Max bought $60,000 face value 10% business bond issued on January 1 maturing in one year. Interest payable is on July 1 and December 31. TJ purchased it on May 1. Interest was received on July 1.,Dr. Cash 3,000 Cr. Interest Receivable 2,000 Investment Income-Bonds
15、1,000,Bonds,16,TJ Max purchased 2,000 shares from Big Lot. The market value was $55 per share, which included dividend of $10,000 having been declared but not yet realized.,Dr. Short-term Investment -Stocks 110,000 Dividend Receivable 10,000 Cr. Cash 120,000,1)Purchases of Marketable Securities,Stocks,17,Income: interest income, unrealized capital gain,Bonds,2)Income of Marketable Securities,Dr. Interest Receivable 10,000 Cr. Investment Income 10,000,Interest Income,18,2)Income of Marketable Securities,Stocks,Income: Dividend, Unrealized capital gain,Dr. Dividend Rece
