What are current assets? (with photos)

Current assets may include shares.

Sometimes called liquid assets, current assets are resources that are currently in the holder’s possession and can be converted into cash quite easily. Generally, these cash equivalents would demonstrate the ability to undergo this type of conversion within a calendar year or less from the current date. Almost every business and every household has resources that can reasonably be considered current assets.

Cash is the most common form of liquid or current asset.

One of the most easily identifiable forms is found in a company’s Accounts Receivable. In most cases, outstanding invoices issued to customers must be paid in accordance with the terms indicated on the invoice. While 30 days is the norm for many companies, it is not uncommon for payment terms to reach up to 45 days from the invoice date before the invoice is considered overdue. Since payment of outstanding invoices can reasonably be expected to occur in a year or less, outstanding accounts receivable are the perfect example of a current asset.

Stocks are also good examples. This includes both raw materials intended for use in production and available finished products. It is expected that raw materials will be consumed in the manufacturing process within a calendar year, and the resulting finished products will also be sold to customers within that same time frame.

Bonds and other marketable securities are also often considered current assets. This is true when the bond matures within one year, allowing the bondholder to recoup the original investment plus interest. In the case of stocks and other bonds, if they are expected to sell at a profit in the next calendar year, they can also be considered part of this pool of resources. This is especially true because stocks are often easy to convert to cash when needed.

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One form that is sometimes overlooked is prepaid expenses. For example, an owner may choose to pay for a year of services related to utilities, land maintenance, or other recurring expenses. Sometimes companies also pay upfront for ongoing service as a means of avoiding a monthly payment submission task. In both cases, the prepaid expense is carried on the balance sheet and can be correctly accounted for among current assets if the full prepaid amount is consumed within the calendar year.

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