Current assets and current liabilities;Working capital;

              Accounting Research BULLETINS
Issued by the Committee on Accounting Procedure, American Institute of Accountants 13 East 41st Street, New York 17, N. Y.
Copyright 1947 by American Institute of Accountants
Current Assets and Current Liabilities
Working Capital
1. The working capital of a prospective borrower has always been of prime interest to grantors of credit; and frequently working capital has been the subject, in bond indentures, credit agreements, and pre-ferred stock agreements, of provisions restricting corporate actions with respect to its reduction or impairment. Many such contracts forego precise or uniform definitions and merely provide that current assets and current liabilities shall be determined in accordance with generally accepted accounting procedures. Considerable variation and inconsistency exist, however, in current practice with respect to their classification and display. In this bulletin the committee dis-cusses the nature of current assets and current liabilities with a view to developing criteria as an aid to a more useful presentation thereof in financial statements.
2. The committee believes that, in the past, definitions of current assets have tended to be overly concerned with immediate or forced liquidation values. The discussion which follows takes cognizance of the tendency in recent years for creditors to rely more upon the ability of debtors to pay their obligations out of the proceeds of current oper-ations and less upon the debtor's ability to pay in case of liquidation. It should be reemphasized that financial statements of a going concern are prepared on the assumption that the company will continue in business.1 Accordingly, this statement represents a departure from any narrow definition or strict "one year" interpretation of either current assets or current liabilities; the objective is to relate the criteria developed to the operating cycle of a business.
3. Financial position, as it is reflected by the records and accounts from which the statement is prepared, is revealed in a presentation of the assets and liabilities of the enterprise. These assets and liabili-ties in statements prepared by manufacturing, trading, and service
1 See "Examination of Financial Statements," page 2, published by the American Institute of Accountants.
247
August, 1947
No. 30