Are Wall Treatments Current Assets?
The term current asset denotes assets which are either currently in the form of cash or are expected to be converted into cash within a short period, usually one year. Cash, of course, is a current asset under this definition, since it consists of unrestricted funds available for immediate disbursement.
By marketable securities is meant securities that are expected to be converted into cash within a year. Marketable securities are current assets. They are recorded at cost which is in accord with one of the accounting principles, the cost concept.
Investments are securities that are held for a longer period of time and are purchased for reasons other than temporary use of excess cash, they are noncurrent assets.
The word security means an instrument such as a stock or bond. Thus a share of the common stock of Bed Linens Company, Inc. would be classified as a security.
An accounts receivable is an amount that is owed to the business, usually by one of its customers, as a result of the ordinary extension of credit. Thus your monthly bills from a telephone company, electric company, etc. would be carried on their books as their accounts receivable. Similarly, if Bed Linens Company, Inc. sold quality bed linens and sheet sets on account, it has accounts receivable from customers.
A debt that is evidenced by a note or other written acknowledgement is termed a note receivable. Thus an obligation of a bed linens company to pay a manufacturing company for wall treatments purchased on account is to be recorded as accounts receivable on the books of the manufacturing company.
Most of the time, a creditor would ask his customer to sign a promissory note after the customer defaulted in the settlement of his obligation. If this happens, a promissory note to repay a debt is a note receivable on the books of the creditor thus substituting the accounts receivable entry.
A fence around a company’s property benefits the company by providing security and protection against loss. It is an asset. Would you think that a fire insurance policy that gives a year protection would also be an asset? It is. The protection provided by a one-year insurance policy will last a relatively short period. Therefore, such a policy would be considered a current asset.
Goods being held for sale, as well as materials and partially finished products which upon completion will be sold are termed inventories. For example, wall treatments used by the business in its office is not inventory. Wall treatments owned by a bed linens business for resale is inventory.
Wall treatments together with luxury bed ensembles, quality bed linens, unique beach towels and other bedroom accessory are noncash assets but are expected to be converted into cash within a short period of time; hence they are listed as current assets under the account title merchandise inventory.