Prepaid expenses

The working capital includes the cost of inventories, such as raw materials, materials-in-process, products, etc as well as suppHes, accounts receivable less accounts payable, prepaid expenses, other cash needs such as payroll, and some start-up expenses, eg, materials and wages. Typical inventories can be taken as one month s supply of raw materials, products, and materials-in-process. The materials-in-process can be valued at one month s sales. Other operating cash can be estimated as the actual cash need for one month. 

Assets are classified as current, fixed, or intangibles. Current assets include cash, cash equivalents, marketable securities, accounts receivable, inventories, and prepaid expenses. Cash and cash equivalents are those items that can be easily converted to cash. Marketable securities are securities that a company holds that also may be converted to cash. Accounts receivable are the amounts due a company from customers from material that has been delivered but has not been collected as yet. Customers are given 30, 60, or 90 days in which to pay however, some customers fail to pay bills on time or may not be able to pay at all. An allowance is made for doubtful accounts. The amount is deducted from the accounts receivables. Inventories include the cost of raw materials, goods in process, and product on hand. Prepaid expenses include insurance premiums paid, charges for leased equipment, and charges for advertising that are paid prior to the receipt of the benefit from these items. The sum of all the above items is the total current assets. The term current refers to the fact that these assets are easily converted within a year, or more hkely in a shorter time, say, 90 days. 

An alternative to the current ratio is the quick ratio (also known as the acid test). For this ratio, quick assets are defined as assets that are easily converted to cash. Therefore, inventories and prepaid expenses (such as prepaid rent and insurance policies) are not included in calculating assets. Because the quick ratio considers only assets that are easily converted to cash (and therefore can be used to pay bills, etc.), it provides a better picture of a company s liquidity and its ability to meet its financial obligations. 

Quick ratio = (current assets — inventories — prepaid expenses) -f- current liabilities... 

Prepaid expenses include prepaid insurance premiums as well as leases for equipment, computers, and office machinery. These expenses are listed under current assets because although full benefit has not been received, the company has paid for the assets and expects to receive full benefit within the year. 

Total Current Assets. The sum of cash, marketable securities, inventories, accounts receivable, and prepaid expenses is called total current assets. 

Health maintenance organization A health plan that provides a full range of health benefits to a specified group of subscribers for a fixed prepaid fee, regardless of the expense of the care needed. The fee can either be paid by the subscriber or by an employer. 

Marketable Securities Accounts Receivable Inventories Prepaid Expenses Total Current Assets... 

As shown in Table 16.3, assets for this corporation are divided into Current Assets, Investments, Property, and Other Assets. Current assets are items of economic value that could be converted to cash in less than one year, including cash and cash equivalents, marketable securities, accounts receivable, inventories, prepaid expenses, and deferred income taxes. The current assets total 4,630,000,000. Investments pertain to investments in companies in which ownership interest by U.S. Chemicals is 50% or less, but where U.S. Chemicals exercises significant influence over operating and financial policies. Property constitutes fixed assets, including land, buildings, machineiyr, equipment, and software, and is listed at its bod... 

Prepaid expenses This might be the prepaid purchase price of pipe not yet delivered or dues to a contractor organization. These items are assets because the contractor is entitled to receive something of value. 

Change in prepaid expenses and other current assets Change in accounts payable and other current liabilities Change in income taxes payable Other, net... 

Much of the supply chain and operations activities fall into the operating activities, and include cash outflows for payables, inventory and materials, COGS, overhead, and prepaid expenses. Cash inflows include accounts receivable and sales revenue. Noncash expense accounts such as depreciation and amortization are included in... 

Change in prepaid expenses and other current assets -51... 

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