Assets
A company’s assets can be divided into two broad categories: current assets and long-term assets. Current assets are anything that could be converted into cash within a year. Current assets consist of:
- • Cash and cash equivalents—Cash and highly liquid investments such as securities and money market instruments that can be easily converted into cash
- • Accounts receivable—Money that is owed to the company by customers
- • Prepaid expenses—Goods or services that have been paid for, but will be received in the future (e.g., postage, insurance, office supplies)
- • Inventory—Products the company is holding and plans to sell in the near future; accountants can choose between two different ways to value inventory
- » FIFO (first in, first out)—Units purchased first are assumed to be sold first
- » LIFO (last in, first out)—Units purchased last are assumed to be sold first
In an inflationary environment, a LIFO