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FASB: Current Assets, Prepaid Expenses

1. Locate the Master Glossary in the FASB Codification, and answer the following questions:

a. What is the formal definition in the glossary of the term "Current Assets?"
b. Provide one drill-down reference from the Master Glossary for where the term "Current Assets" is used in the Codification.

2. "A company includes prepaid expenses in current assets if it will receive benefits (usually services) within one year or the operating cycle, whichever is longer." Use the Codification to answer the following questions: (Provide the Codification references for your answers)

a. What are four examples of prepaid expenses listed in the guidance that are generally included in current assets?
b. Guidance stipulates that prepaid expenses are to be classified as current assets, however they do not meet the "conventional" definition of a current asset as they are not realized in cash during the normal operating cycle of the business. What is the discussion provided in guidance supporting how the nature of prepaid expenses results in their classification as current assets?
c. Based on the guidance found in this section of the Codification, if a company prepaid a three year insurance policy and the company's operating cycle is one year, would the prepaid insurance be recorded as a current asset, non current asset, or both?

Solution Preview

a. What is the formal definition in the glossary of the term "Current Assets?"

"Current assets is used to designate cash and other assets or resources commonly identified as those that are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business. See paragraphs 210-10-45-1 through 45-4."

b. Provide one drill-down reference from the Master Glossary for where the term "Current Assets" is used in the Codification.

210-10-45-1 "Current assets generally include all of the following:
a. Cash available for current operations and items that are cash equivalents
b. Inventories of merchandise, raw materials, goods in process, finished goods, operating supplies, and ordinary maintenance material and parts
c. Trade accounts, notes, and acceptances receivable
d. Receivables from officers, employees, affiliates, and others, if collectible in the ordinary course of business within a year
e. Installment or deferred accounts and notes receivable if they conform generally to normal trade practices and terms within the business
f. Marketable securities representing the investment of cash available for ...

Solution Summary

Your tutorial is 487 words and includes references and direct cut-and-paste from the codification on prepaid assets and classification as current or noncurrent.

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