What are current assets?
Current assets include all assets of the business, which will be used in the business operation during the period of 12 months or shorter.
Current assets on balance sheet are presented as a separate category, since total current assets balance is important for the users of financial statements.
List of current assets includes these main categories:
- Cash
- Marketable Securities
- Accounts Receivable
- Inventory
- Other current assets
Since current assets include those assets, which are liquid and can be quite quickly converted to cash, these assets are very important for the business.
They allow the business continue its operations and fulfill current liabilities when they fall due.
Examples of Current Assets
Examples of current assets from the above mentioned categories are:
Cash, which also includes cash equivalents, marketable securities
Accounts receivable, which are presented on the balance sheet net of Allowance for Doubtful Accounts.
Inventory would include those items, which are specific to the activities of business. These might include raw materials, manufacturing components, work in progress, finished goods, goods for resale and similar.
Other current assets examples are advances paid to vendors, prepaid expenses (insurance, subscriptions)
Current Assets Formula
If we would like to calculate current total current assets, we could use the following current assets formula (data is taken from Balance Sheet):
Current asset definition implies these assets do include only current items and on the balance sheet they are presented by liquidity order, i.e. the most liquid assets, like cash, are presented first.
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