Series 7: 9.4.1.2.1 Assets

9.4.1.2.1  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 as