The current classification applies to those assets that will be realized in cash, sold, or consumed within one year (or operating cycle, if longer), and those liabilities that will be discharged by use of current assets or the creation of additional current liabilities within one year (or operating cycle, if longer). The current liability section of a balance sheet is also intended to include obligations that are due on demand or will be due on demand within one year from the balance sheet date, even though liquidation may not be expected within that period. Short-term obligations shall be excluded from current liabilities only if the enterprise intends to refinance the obligation on a long-term basis and has the demonstrated ability to consummate the financing. The ordinary operations of a business involve a circulation of capital within the current asset group. Cash is expended for materials, labor, operating expenses, and other services, and such cash expenditures are included in the inventory value. Upon sale of the products or performance of services, the accumulated expenditures are converted into receivables and ultimately into cash again. The average period of time intervening between the cash-to-cash conversion is the operating cycle of the business. When the business has no clear operating cycle, or when the operating cycle is shorter than 12 months, a 12-month period should be used to segregate current assets. This concept of the nature of current assets would exclude from that classification such resources as 1) cash and claims to cash that are restricted as to withdrawal or other use for current operations; 2) investments in securities (whether marketable or not) or advances that have been made for the purpose of control, affiliation, or other business advantage; 3) cash surrender value of life insurance; 4) depreciable assets; 5) long-term receivables; and 6) land. For analytical purposes, specific recommendations of the FFSC are:
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