What Are Current Assets? 1. Trading Account What Is a Trial Balance?

The Current Assets account is a balance sheet line item Trading account is used to determine the gross profit or A trial balance is a bookkeeping worksheet in which the
listed under the Assets section, which accounts for all gross loss of a business which results from trading balances of all ledgers are compiled into debit and credit
company-owned assets that can be converted to cash activities. Trading activities are mostly related to the account column totals that are equal. A company prepares
within one year. Assets whose value is recorded in the buying and selling activities involved in a business. a trial balance periodically, usually at the end of every
Current Assets account are considered current assets. Trading account is useful for businesses that are dealing reporting period. The general purpose of producing a trial
Current assets include cash, cash equivalents, accounts balance is to ensure that the entries in a company’s
receivable, stock inventory, marketable securities, pre-paid
in the trading business. This account helps them to easily
determine the overall gross profit or gross loss of the bookkeeping system are mathematically correct.
liabilities, and other liquid assets. Current Assets may also
be called Current Accounts. business. The amount thus determined is an indicator of A trial balance is so called because it provides a test of a
 Current Assets is an account listed on a the efficiency of the business in buying and selling. fundamental aspect of a set of books, but is not a full
balance sheet that shows the value of the The formulae for calculating gross profit is as follows: audit of them. A trial balance is often the first step in an
assets owned by a company that can be Gross profit = Net sales – Cost of goods sold audit procedure, because it allows auditors to make sure
converted to cash through liquidation, use, or 2. Profit and Loss Account there are no mathematical errors in the bookkeeping
sales within one year. Profit and loss account shows the net profit and net loss of system before moving on to more complex and detailed
 Current assets include cash, cash equivalents, the business for the accounting period. This account is analyses.
accounts receivable, stock inventory, prepared in order to determine the net profit or net loss 1. A trial balance is a worksheet with two
marketable securities, pre-paid liabilities, and that occurs during an accounting period for a business columns, one for debits and one for credits,
other liquid assets. that ensures a company’s bookkeeping is
concern.
 The Current Assets account is important Profit and loss account get initiated by entering the gross mathematically correct.
because it demonstrates a company's short- 2. The debits and credits include all business
loss on the debit side or gross profit on the credit side.
term liquidity and ability to pay its short-term transactions for a company over a certain
obligations. This value is obtained from the balance which is carried
down from the Trading account. period, including the sum of such accounts as
Types of Current Assets A business will incur many other expenses in addition to assets, expenses, liabilities, and revenues.
Many assets can be considered current by different the direct expenses. These expenses are deducted from the 3. Debits and credits of a trial balance must tally
businesses throughout all industries. In general, profit or are added to gross loss and the resulting value to ensure that there are no mathematical errors,
most industries group their current assets into these thus obtained will be net profit or net loss. but there could still be mistakes or errors in the
sub-accounts; however, you might see others: The examples of expenses that can be included in a Profit accounting systems.
 Cash and Cash Equivalents and Loss Account are: What is the Fund Flow Statement?
 Marketable Securities 1. Sales Tax 2. Maintenance 3. Depreciation Fund flow statement is a statement that compares the two
 Accounts Receivable 4. Administrative Expense 5. Selling and Distribution balance sheets by analyzing the sources of funds (debt
 Inventory Expense 6. Provisions 7. Freight and carriage on sales and equity capital) and the application of funds (assets)
8. Wages and Salaries and its reasons for any differences. It helps the company
 Prepaid Liabilities/Expenses see through where their money has been spent and from
What are Journal Entries in Accounting?
 Other Short-Term Investments where they have received the money (long-term funds
In an accounting career, journal entries are by far one of
. raised by issues of shares, debentures, and sale of non-
Cash and Cash Equivalents
the most important skills to master. Without proper
journal entries, companies’ financial statements would be current assets).
By definition, assets in the Current Assets account  Fund flow statements offer a concise overview
inaccurate and a complete mess.
are cash or can be quickly converted to cash. Cash of the inflow and outflow of funds within an
An easy way to understand journal entries is to think of
equivalents are certificates of deposit, money organization during a specific period.
Isaac Newton’s third law of motion, which states that for
market funds, short-term government bonds, and  Fund flow statements serve as a valuable tool
every action, there is an equal and opposite reaction. So,
treasury bills. for organizations to gain insights into their
whenever a transaction occurs within a company, there
Marketable Securities cash position, conduct a thorough financial
must be at least two accounts affected in opposite ways.
Marketable Securities is the account where the total performance analysis, and identify areas for
For example, if a company bought a car, its assets would
value of liquid investments that can be quickly potential financial management improvement.
go up by the value of the car. However, there needs to be
converted to cash without reducing their market  Fund flow statements hold significant
an additional account that changes (i.e., the equal and
value is entered importance for investors, creditors, and other
opposite reaction). The other account affected is the
Accounts Receivable stakeholders as they provide valuable
company’s cash going down because they used the cash
Accounts Receivable—the value of all money due information to assess an organization’s
to purchase the car.
to a company for goods or services delivered or financial health and stability
Finally, just like how the size of the forces on the first
used but not yet paid for by customers—is entered What is Cash Flow Statement?
object must equal that of the second object, the debits and
in Current Assets as long as the accounts can be A cash flow statement is a financial statement that
credits of every journal entry must be equal.
expected to be paid within a year presents total data. Including cash inflows a business
In every journal entry that is recorded, the debits and
Inventory gains from its continuing progress and external financing
credits must be equal to ensure that the accounting
Inventory—which represents raw materials, components, sources, as well as all cash outflows that pay for trading
equation (Assets = Liabilities + Shareholders’ Equity)
and finished products—is included in the Current Assets activities and finances during a delivered time. In other
account. However, different accounting methods can remains in balance. When doing journal entries, we must
always consider four factors: words, a cash flow statement is a financial statement that
adjust inventory; at times, it may not be as liquid as other estimates the cash produced or used by a firm in a
1. Which accounts are affected by the transaction
qualified current assets depending on the product and the presented time.
2. For each account, determine if it is increased
industry sector.  While outlining a cash flow statement,
or decreased
Prepaid Liabilities complete specifications of outflows and
3. For each account, determine how much it is
Prepaid expenses—which represent advance payments inflows are furnished below these titles
changed
made by a company for goods and services to be received involving the net cash flow (or use)
4. Make sure that the accounting equation stays
in the future—are considered current assets. Although
they cannot be converted into cash, they are payments in balance  The average of the net ‘cash flows (or use) is
already made. These payments free up capital for other operated out and is given as ‘Net Increase or
uses. Prepaid expenses might include payments to Decrease in Cash Equivalents and cash’ to
insurance companies or contractors. which the amount of ‘cash and cash equivalent
at the commencement’ is summed and
therefore the quantity of ‘cash and cash
equivalents at the end’ is reported.
 This total will be the same as the entire
amount of cash at bank, cash equivalents (if
any) and cash in hand presented in the balance
sheet.
 Then, if the cash flows from operating
activities are formed by direct method while
outlining the cash flow statement, it will be
known as ‘direct method Cash Flow
Statement’.