Current Assets refer to the assets of a company that will turn into cash within an year or a company’s operating cycle, whichever is more. These assets include cash, cash equivalent or any other asset of a company. Based on the kind of business, these can range from foreign currency to furniture and son on. These are usually mentioned first on a company’s balance sheet and are listed in order of their liquidity. This means that the assets which will convert into cash sooner than the others are listed first, in the balance sheet. These type of Assets are also called as short term assets.
Current Assets include the following:
- Cash
- Short term investments
- Marketable securities
- Inventory
- Prepaid expenses
- Account receivables
Significance of Current Assets
These assets are essential for a business as they represent the amount of funds accessible by a business within the next one year or the operating cycle. It also represents that how a business is funding its routine and ongoing operations.
Current Assets help in assessing the short term liquidity of a firm. Liquidity is assessed by taking the ratio of current assets to current liabilities. These assets can be utilized by a business for paying their outstanding debts and for paying off liabilities without selling their fixed assets.
