The Current Asset Classification,
Cash, and Accounts Receivable
Presentations for Chapter 6 by Glenn Owen
Key Points






Current assets, working capital, current ratio, and quick
ratio, and how these measures are used to asses the solvency
position of a company.
“Window dressing” and the reporting of current assets,
working capital, and the current ratio.
Techniques used to account for and control cash.
Accounts receivable and how they are valued on the balance
sheet.
The allowance method for uncollected receivables.
Major concerns of financial statement users
in the area of receivables reporting.
The Operating Cycle
Cash
The Operating Cycle
Manufacture or
purchase inventory
Cash
Inventory
The Operating Cycle
Manufacture or
purchase inventory
Cash
Accounts
Receivable
Sales to
customers
Inventory
The Operating Cycle
Receive
payment
Accounts
Receivable
Manufacture or
purchase inventory
Cash
Sales to
customers
Inventory
由購料開始，經過生產－銷售－收款，稱為一
個營業循環。如從現金流量觀點，自現金流出購料
付現，到應收款項收現獲得現金流入，此一循環稱
為現金循環。
圖4-2
現金循環圖
Current Asset Classification

Current assets are those intended to be converted
into cash (liquidated) in the near future.
 The distinction is useful because it provides an
easy-to-determine, low-cost measure of a
company’s ability to produce cash in the short-run.
 The relative size of current assets varies by
industry as shown in the following tables.
Current Assets/Total Assets
Company (Industry)
General Electric (Manufacturing)
Chevron Oil (Oil drilling and refining)
Super Value (Grocery)
Tommy Hilfiger (Clothing)
Yahoo (Internet search engine)
Cisco (Internet systems)
SBC Communications (Telcom services)
Wendy’s (Restaurant services)
Bank of America (Banking services)
Merrill Lynch (Investment services)
Current Assets
/Total Assets
.27
.20
.33
.36
.57
.34
.23
.16
.70
.91
Current Ratio

Current assets are often compared to current
liabilities as an indicator of a company’s
solvency.
 Average current ratios also vary across
industries as shown in the following tables.
Current Ratios
Company (Industry)
General Electric (Manufacturing)
Chevron Oil (Oil drilling and refining)
Super Value (Grocery)
Tommy Hilfiger (Clothing)
Yahoo (Internet search engine)
Cisco (Internet systems)
SBC Communications (Telcom services)
Wendy’s (Restaurant services)
Bank of America (Banking services)
Merrill Lynch (Investment services)
Current Assets
/Current Liabilities
.75
1.07
.87
2.71
4.14
2.14
.26
1.08
.86
1.17
Cash

The cash account is the first asset listed in the
current asset section of the balance sheet.
 It consists of coin, checks, and bank drafts
received by the company.
 The only reporting issues for cash is whether there
are restrictions on its use.
 The amount of cash maintained by companies also
varies by industry as shown in the following tables.
Cash as a % of Total Assets
Company (Industry)
General Electric (Manufacturing)
Chevron Oil (Oil drilling and refining)
Super Value (Grocery)
Tommy Hilfiger (Clothing)
Yahoo (Internet search engine)
Cisco (Internet systems)
SBC Communications (Telcom services)
Wendy’s (Restaurant services)
Bank of America (Banking services)
Merrill Lynch (Investment services)
Cash
/Total Assets
.02
.05
.00
.13
.20
.13
.01
.09
.04
.05
Cash as a % of Current Assets
Company (Industry)
General Electric (Manufacturing)
Chevron Oil (Oil drilling and refining)
Super Value (Grocery)
Tommy Hilfiger (Clothing)
Yahoo (Internet search engine)
Cisco (Internet systems)
SBC Communications (Telcom services)
Wendy’s (Restaurant services)
Bank of America (Banking services)
Merrill Lynch (Investment services)
Cash
/Current Assets
.07
.23
.01
.36
.35
.38
.03
.53
.06
.06
Proper Management and
Control of Cash

Proper cash management requires that
enough cash be available to meet the needs
of the company’s operations.
 Too much cash is undesirable as it loses
purchasing power in periods of inflation.
 Control of cash
– Record control
– Physical control
Accounts Receivable

Accounts receivable arise from selling goods or
services to customers on account.
 Table of accounts receivable as a percentage of
total assets by industry.
 Table of average accounts receivable collection
periods by industry.
 Allowance for Uncollectible Accounts
– T-accounts
– Percentage of Sales
– Aging
A/R as a % of Total Assets
Company (Industry)
General Electric (Manufacturing)
Chevron Oil (Oil drilling and refining)
Super Value (Grocery)
Tommy Hilfiger (Clothing)
Yahoo (Internet search engine)
Cisco (Internet systems)
SBC Communications (Telcom services)
Wendy’s (Restaurant services)
Bank of America (Banking services)
Merrill Lynch (Investment services)
A/R
/Total Assets
.35
.09
.09
.09
.04
.07
.10
.04
.61
.47
A/R as a % of Current Assets
Company (Industry)
General Electric (Manufacturing)
Chevron Oil (Oil drilling and refining)
Super Value (Grocery)
Tommy Hilfiger (Clothing)
Yahoo (Internet search engine)
Cisco (Internet systems)
SBC Communications (Telcom services)
Wendy’s (Restaurant services)
Bank of America (Banking services)
Merrill Lynch (Investment services)
A/R
/Current Assets
1.03
.47
.26
.26
.07
.21
.03
.24
.87
.52
Allowance for Uncollectibles
(T-account)
Allowance for Uncollectibles
Beginning
Balance
The allowance established in the
prior period remains for current
period write-offs.
Allowance for Uncollectibles
(T-account)
Allowance for Uncollectibles
Beginning
Balance
Write-off of
accounts
receivable
Accounts Receivable
Write-off of
accounts
receivable
As receivable accounts are
determined uncollectible, they
are written-off to the allowance
account as shown.
Allowance for Uncollectibles
(T-account)
Allowance for Uncollectibles
Beginning
Balance
Write-off of
accounts
receivable
Bad Debts Expense
Recognition of bad
debt expense
Recognition of bad
debt expense
Accounts Receivable
Write-off of
accounts
receivable
At the end of each accounting
period an estimate of the current
period bad debt expense is
recorded, increasing the
allowance.
Allowance for Uncollectibles
(T-account)
Allowance for Uncollectibles
Beginning
Balance
Write-off of
accounts
receivable
Bad Debts Expense
Recognition of bad
debt expense
Recognition of bad
debt expense
Ending
Balance
Accounts Receivable
Write-off of
accounts
receivable
The ending balance in the
allowance account remains as an
estimate for future period writeoffs.
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