What are Current Assets?
Sometimes referred to as liquid assets, current assets are resources that are currently in the possession of the holder and could be converted into cash with a great deal of ease. Generally, these cash equivalents would demonstrate an ability to undergo this type of conversion within one calendar year or less from the current date. Just about every business and every household have resources that can reasonably be considered current assets. One of the most easily identifiable forms of current assets is found in the Accounts Receivable of a company. In most cases, outstanding invoices issued to customers are expected to be paid according to the terms noted on the invoice. While thirty days is the norm for many businesses, it is not unusual for the terms of payment to be as much as forty-five days from the invoice date before the invoice is considered overdue. Since payment of the outstanding invoices can be reasonably expected to occur in one year or less, outstanding Receivables are th
Current assets are a major component of the balance sheet and represent assets that are expected to be sold or used, typically within the next 12 months. They are also an important measure of a companies liquidity position. Current assets have become a very important factor in evaluating the financial strength of a company, in the event of a weak economic environment or one of lower demand. Many of the popular financial ratios will utilize the current assets when performing analysis to gauge financial performance and stability. Current assets are used to fund the everyday operations of the company and fall within one the following five categories: cash & equivalents, short term investments, inventory, accounts receivable, and prepaid expenses.
Assets are anything which the firm owns or has title to (in other words ownership of). Firms may have fixed assets which are long-term assets – plant, machinery and equipment, but they will also have assets which can be realised (cashed-in) in the short-term. This is generally taken in accounting terms to be less than a year. The current assets are therefore ones that can be quickly realised and change frequently. The main current assets are stock, debtors and cash. CURRENT ASSETS = Stock + Debtors + Cash They are usually shown on the top half of the balance sheet, and the current liabilities are subtracted from them to show net current assets.
