Assets are segregated on balance sheet according to how they are utilized. Current assets include cash or those assets expected to be converted into cash within one year or operating cycle, whichever is longer. The operating cycle is the time required to purchase or manufacture inventory, sell the product, and collect the cash. For most companies, the operating cycle is less than one year, but in some industries, it is longer. The designation “current” refers essentially to those assets that are continually used up and replenished in the ongoing operations of the business. The term working capital or net working capital is used to designate the amount by which current assets exceed current liabilities.
The cash account is exactly cash in any form – cash awaiting deposit or in a bank account. Marketable securities are cash substitutes, cash that is not needed immediately in the business and is temporarily invested to earn a return. These investments are in instruments with short-term maturities （less than one year） to minimize the risk of interest rate fluctuation. They must be relatively riskless securities and highly liquid so that funds can be readily withdrawn as needed. Instruments used for such purposes include U.S treasury bills, certificates, notes, and bonds, negotiable certificates of deposit at financial institutions; and commercial paper.
Accounts receivable are customer balances outstanding on credit sales and are reported on the balance sheet at their net realizable value, that is, the actual amount of the account less an allowance for doubtful accounts. Management must estimate – based on such factors as past experience, knowledge of customer quality, the state of the economy, and the firm’s collection policies – the dollar amount of accounts expected to be uncollectible during an accounting period. Actual losses are written off against the allowance account, which is adjusted at the end of each accounting period.
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