Current assets can be broken down into cash and cash equivalents, accounts receivable, inventory, prepaid expenses, and deferred charges. The cash section would include accounts such as cash on hand, petty cash, bank accounts, time deposits, certificates of deposit, temporary cash investments, marketable securities, negotiable instruments or other similar accounts. You may want to have separate accounts set up for each bank account, if you have more than one, to facilitate reconciliation and control.
The accounts receivable section will include an account for trade receivables, or accounts receivable from customers and clients. This account is normally supported by a subledger, with a separate account for each customer or client. An account entitled “allowance for doubtful accounts” or “allowance for bad debts” is used to record accounts that may not be collected. This account normally has a credit balance, with the offsetting charge to a corresponding account in the expense section.
Receivables that are formally documented are normally recorded as notes receivable. If your business is one of a group of affiliated companies, is a subsidiary of a parent company, or has ownership interests in other companies, the receivable section could include accounts receivable from related companies, intercompany receivables, due from affiliates, or similar accounts. These could be accounts receivable or notes receivable, or both.
Other accounts that could be set up in the receivables section include expense advances, due from employees, employee loans, due from officers, recoverable taxes, and other or miscellaneous receivables.
The accounts set up in the inventory section depend on the line of business. Some general examples include raw materials, supplies, work-in-process, and finished products or finished goods. An inventory subledger may be maintained to keep track of each individual product.
Prepaid expenses could be recorded in a single account, or separate accounts could be set up for different types of prepaid expenses, such as prepaid insurance, prepaid rent, prepaid interest, prepaid contracts, or contractor advances. There should be an account for estimated advance income tax payments, for U.S. federal income tax, and state and local income tax payments, if applicable.
Deferred charges could also be recorded in one account, or in separate accounts for deferred expenses, deferred taxes, deferred customs duties, and others, as necessary.