Conceptual querry



(QUE.1)   CURRENT RATIO IMPLIES THAT THE AMOUNT OF CURRENT ASSESTS AVAILABLE TO PAY EACH RUPEE OF CURRENT LIABILITES. IT IS CALCULATED BY USING THE FORMULAE    ( CURRENT ASSETS/ CURRENT LIABILITIES.) .

MY QUERRY IS THAT WHY DO WE INCLUDE PREPAID EXPENSES IN CURRENT ASSETS ALTHOUGH THEY ARE NOT AVAILABLE TO PAY CURRENT LIABILTIES.

 

 
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Yes prepid eps. will not form part of current ratio....


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Chartered Accountant

no prepaid expenses is not included..


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CA Student

Originally posted by : Anuj Jain

(QUE.1)   CURRENT RATIO IMPLIES THAT THE AMOUNT OF CURRENT ASSESTS AVAILABLE TO PAY EACH RUPEE OF CURRENT LIABILITES. IT IS CALCULATED BY USING THE FORMULAE    ( CURRENT ASSETS/ CURRENT LIABILITIES.) .
MY QUERRY IS THAT WHY DO WE INCLUDE PREPAID EXPENSES IN CURRENT ASSETS ALTHOUGH THEY ARE NOT AVAILABLE TO PAY CURRENT LIABILTIES.

Prepaid expenses are included since no further payment has to be made against the expenses, the benefit of which will be received soon. They represent payments made in advance which will not have to be paid in near future.
.
Whereas prepaid expenses are excluded from Quick Assets (in Acid Test Ratio/Quick Ratio/Liquid Ratio) since no cash will be realised from it.

 
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Originally posted by : |)eep @ k Gupt/\




Originally posted by : Anuj Jain






(QUE.1)   CURRENT RATIO IMPLIES THAT THE AMOUNT OF CURRENT ASSESTS AVAILABLE TO PAY EACH RUPEE OF CURRENT LIABILITES. IT IS CALCULATED BY USING THE FORMULAE    ( CURRENT ASSETS/ CURRENT LIABILITIES.) .
MY QUERRY IS THAT WHY DO WE INCLUDE PREPAID EXPENSES IN CURRENT ASSETS ALTHOUGH THEY ARE NOT AVAILABLE TO PAY CURRENT LIABILTIES.






Prepaid expenses are included since no further payment has to be made against the expenses, the benefit of which will be received soon. They represent payments made in advance which will not have to be paid in near future.
.
Whereas prepaid expenses are excluded from Quick Assets (in Acid Test Ratio/Quick Ratio/Liquid Ratio) since no cash will be realised from it.

Agreed.

 
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Genuine query raised boss..

ill go slightly out of the box..

think the firm or company gets liquidated as of now,

Prepaid Expense is part of current asset  why...

obviously u ll realize it from the person whom u ve paid in advance and use it to pay off the current liablities..if ur firm is gonna get liquidated...rather i change my point here,u even need not get liquidated...u infact hold the right to ask the person money back, whom u ve paid  advance and use that money to pay ur creditors...

 

isnt it?

 

There is perhaps has to be a better explanation...however open for constructive suggestions.

 

Regards.

 
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article assist

Friends,

My questions is why we have to shown the PREPAID EXPESES under Current Assets? Please revert back to me soon,is there any guidelnce or circuler issued by the institute regarding the same issue??

Thanks in advance...!

 
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