Question

Focus Eye Bhd is a company selling eyeware proudects. In January Focus Eye agrees to sell goods on credit to a customer, Mr X. The products are:

* 10 units of Elegant eyeware @RM500 per unit
*20 units of smart eyeware @Rm 300 per unit

focus Eye gives a cridet term of 30 days To Mr X for the debt settlement.  Are the goods sold to Mr X current assets? Are the asset sold considered items of receivables?

Answer 1

All goods traded by the seller are part of inventory . Since these arepart of inventory, these are current assets.

In this case , the Elegent Eyeware and Smart Eyeware are current assets for Focus Eye Bhd.

The accounting entry for the sale would be:

Accounts Receivable…..	Debit
Sales…..		Credit
Cost of goods sold….	Debit
Inventory ….		Credit

Assets sold are NOT items receivable. Assets sold are inventory in the books of Focus Eye Bhd.

For the buyer(Mr. X) , the item can be a current asset or a non-current asset depending on usage and useful life.For example: assume Y is a automobile manufacturer and sells a car to a transport company X,

For Y it is a inventory  and part of current assets. For X it will be non-current asset because it will be used to generate revenue for number of years.

The amount to be received on credit sale is part of accounts receivable