Intermediate Accounting (16th Edition)

Published by Wiley
ISBN 10: 1118743202
ISBN 13: 978-1-11874-320-1

Chapter 5 - Balance Sheet and Statement of Cash Flows - Review and Practice - Questions - Page 237: 12


The relationship between current assets and current liabilities is that current liabilities are those obligations that are reasonably expected to be liquidated by the company through the use/sale of current assets or through creation of other current liabilities, bottom line the two depend on each other. another commonality between the current assets and the current liabilities is that their lifespan is of less than a year.

Work Step by Step

The relationship between the current assets and the current liabilities can be represented by the current ration which is useful in the evaluation of short-term financial health of a company and its advisable that a company should have current assets that exceed the current liabilities or in other words a current ration that exceeds 1.0 is mostly preferable.
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