Current assets can be turned into cash within a year, whereas current liabilities must be paid off within a year or become inactive. Cash, inventories, and accounts receivable are examples of current assets. Accounts payable, salaries due, and the current component of any planned interest or principal payments are all examples of current obligations.
CURRENT ASSETS IN BALANCE SHEET
A company’s current assets are listed on its balance sheet, one of the annual financial reports that must be prepared. Several liquid assets can be included as part of current assets. These include cash and cash equivalents as well as accounts receivable and stock inventory.
EXAMPLES OF CURRENT ASSETS INCLUDE:
- Cash and cash equivalents
- Receivable accounts.
- Expenses that have been pre-paid.
- Readily tradable securities.
DIFFERENCE BETWEEN CURRENT AND NON CURRENT ASSETS
- An asset’s estimated cash value is within a year, referred to as its current value.
- Assets termed noncurrent are ones whose entire worth will not be realized for at least a year.
- Accounts receivable and inventories are examples of current assets. Noncurrent assets include things like property and goodwill.
- For example, long-term debt is considered a noncurrent liability because it is not due for one year.
- On a balance sheet, the only difference between current and noncurrent assets and liabilities is how soon they will be used or paid for.
CURRENT ASSETS AND CURRENT LIABILITIES
As the name suggests, current assets can be converted into cash within the next year, whereas a current liability is the amount of money that must be paid back within that time frame.
Cash, Bank, inventories, prepaid expenses and accounts receivable are all examples of current assets.
Accounts payable, wages due, and the current portion of any planned interest or principal payments are all examples of current liabilities. Accounts payable is a type of current liability.
Working Capital = Current assets – Current Liabilities
CURRENT ASSETS DIVIDED BY CURRENT LIABILITIES
The total current assets divided by liabilities of a company are equal to Cash Ratio (Financial Ratios) that can use to study company liquidity. In other words, it illustrates how well a company can use current assets to pay its current liabilities.
Cash ratio = Current assets / Current Liabilities
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