Define each of the following terms: c. Permanent operating current assets; temporary operating current assets
Define each of the following terms:
Current assets increase in value when there is an increase in business activities. The amount of current assets, especially receivables and inventories, exceeds the budgeted level. Such additional assets are referred to as temporary operating current assets. These assets do not exist for a longer period and may reduce due to a decrease in sales. Also, a decrease in these additional assets does have a substantial effect on the day to day business operations.
Permanent operating current assets are the minimum amount of current assets that a company requires to conduct its day to day operations. These include cash and highly liquid securities, receivables. The level of these assets to be maintained grows with expansion of business activities.
Temporary operating current assets - Temporary current assets are the extra current assets that come into existence due to an increase in the fluctuating assets such as accounts receivable or inventory. An Example of such is an increase in inventory and accounts receivable due to an increase in demand for the product.
Permanent operating current assets - Permanent current assets are the minimum amount of assets that are required by the company to run its business smoothly. An example of permanent current assets are assets that reduce at a faster rate such as cash, accounts receivable, and so on.