Question

The correct order to present current assets is ___________.

Answer 1

Answer:

B. Cash, accounts receivable, inventories, prepaid items.

Explanation:

In the balance sheet, assets are presented in an orderly manner guided by the amount of time they take to convert into cash. Assets requiring the shortest time to convert into cash will appear first. Cash will always be on top as it does not require conversion.

Goodwill comes last as the business will have to be sold for it to turn into cash.  

1. In the list provided, cash will appear first.
2. Accounts receivable is money a business expects to receive from customers for goods or services provided.  In practice, the money should be received within 60 days
3. Inventories in assets refer to finished goods in the store. They are awaiting sales. Inventories will take longer as stocks have to be sold and become account receivable before converting to cash.
4. Prepaid items are expenses paid before their due date. They appear in the balance sheet as cash assets because they have not been consumed. The expectation is that they will be utilized within the current year. Converting into cash them will require getting a refund from the recipient of the funds, which could be a lengthy process.