Current assets and non-current assets are the two categories into which all assets are classified on a balance sheet. Information about current assets of a business is important because it helps assess liquidity of a business when compared with current liabilities. Current assets are an important input in calculation of current ratio and quick ratio.
Typical current assets include:
- Short-term prepayments
- Short-term notes receivable
- Accounts receivable
- Short-term investments
- Cash and cash equivalents
Short-term prepayments represent advance payments for expenses that are expected to be incurred in the next twelve months.
Inventories are goods which are held by a business for the purpose of production or sale. These include raw material, work-in-progress and finished goods.
Short-term notes receivables represent notes receivable that mature in twelve months.
Accounts receivable represent monies that are yet to be collected from customers. They are presented on balance sheet net of any provision for doubtful debts.
Short-term investments represent investments which a business expects to sell within next twelve months.
Cash and cash equivalents include cash in hand, cash at bank and all such financial instruments which can be readily converted to cash without any significant loss of value.
Written by Obaidullah Jan, ACA, CFA and last modified on