In this workout we're being asked to identify whether these items are operating or financing Then identify if they are current or non-current items So we start with short term debt, well the clue is in the name debt. It sounds like that is going to be providing finance in which to buy operating items. So that is definitely going to be a financing item Is that going to be current of non-current? Well short term debt, that probably means we're going to be using it within the next 12 months So that is a current item Accrued expenses, accrued expenses are where you have estimated a bill that you might receive but you haven't received the actual invoice yet (the actual bill) So because it's an estimate, it's not quite an accounts payable yet, it's an accrued expense Accrued expenses tend to be operating in nature, so that's operating Is it current or non-current? Again we tend to see them being short term, so they are going to be current in nature What about cash? Well cash, it's not a source of finance as it were (it's not debt, its no equity) but cash is unlikely to be operating in nature. Some companies do need some cash, so maybe a retailer would have cash in the tills, It wouldn't be able to operate without that cash in the tills so that would be operating cash But cash that is sat at the bank doing nothing (which is what most cash on a company's balance sheet does) That is not operating, so that would be a finance item Is it going to be current or non current? Again we tend to see cash changing very frequently It doesn't just sit there and nothing happens to it at all for 12 months. So that's going to be current Cash equivalents, exactly the same idea but instead of keeping it as cash you maybe bought some shares (some very short term shares) So that's going to be finance and current Now accounts payable, accounts payable is where you owe your suppliers and your suppliers are supplying you with items with which to sell or use in your business. That's going to be an operating item Do your suppliers give you more that 12 months to pay your bills? No they don't! So if you have to pay it off within the next 12 months, that means it's going to be current Now long-term debt, that is a provider of finance so definitely financial in nature Because it says long-term, that means over 12 months and that means it's going to be non-current in nature Investment securites, I'm going to think of that exactly the same as cash or cash equivalent I had some cash, not sure what to do with it so I just bought some securities with it So we make that a financial item Again, probably going to be current in nature Now a revolving credit facility, that is a short term debt facility You can dip into it when you need it, draw down some cash and then as soon as you can pay it off That's a financing item and as I said that is short term You are less likely to get a revolving credit facility for over a year (they do happen on occasion but they are a rarity) So that is going to be a current item Inventory, these are the kind of things that we're going to be selling in our business So that's going to be definitely an operating item We tend not to hold onto inventory for longer than 12 months Some industries do, so maybe property. If you were buying and selling property you might hold onto it for longer but most businesses, that's going to be current A deferred tax current asset, well it even says "current assets" so that's going to be current in nature But deferred taxes can certainly be non-current, so you need to be careful of where they appear in your balance sheet A tricky one here, because it's tax it doesn't immediately feel like it's financial But tax doesn't immediately feel like it's close to operation (close to the kind of things that we sell) But we pay tax on the profits that we earn from our operations, so it does count as an operating item Prepaid assets, we have paid a bill in advance (that's operating) and prepaid assets tend to be short term in nature so current Accounts receivable, that's where your customers owe you some money We tend not to offer our customers more than 12 months to pay their bills, that would be a very very generous credit period. So because it's less than 12 months, it's going to be current Work in progress is the same as inventory, work in progress is just half finished inventory. So that was operating and current An overdraft, an overdraft is very similar to a revolving credit facility, there are distinctions but basically it's short term debt that you can dip in and out of And that means it's going to be financing in nature and because it's short term, it's going to be current Tax payable, well if we go back to the deferred tax current asset We pay taxes on our operating profit so that's going to be operating in nature Is it a current or a non current? Again, depends how long the tax authorities give you to pay your bills but generally they don't give you more that 12 months, so that's going to be current The last one is notes payable, notes payable is another example of a short term debt we've already had revolving credit facility and an overdraft They were both financing in nature and because it's short term, that means again it's going to be current