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Current Assets: Definition & Example

Understand

Current Assets (also known as short term assets) are resources, owned by a company to receive future monetary benefits within one year. These resources are utilized to fund routine transactions and to pay ongoing expenses, for example, cash or cash equivalent, inventories, prepaid expenses and debtors etc. are types of current assets.

These assets generally listed first (before fixed assets) on the company’s balance sheet and presented in liquidity order like most liquid asset of cash is presented in the bottom whereas inventories are presented in the first as these assets are less liquid than cash.

Example

Suppose you own a shop in your city, at the month end, you have cash in hand of $2000 and have made credit sales of $5,000. You have also short term saving of $1,500 in a bank. All these assets are resources of your business, which help to fund routine transactions and to pay ongoing expenses. The main difference between current and fixed assets based on time period as current assets may provide benefits up to one year or during one business cycle.

Why it matters

Several ratios like cash ratio, current ratio, quick ratio and working capital ratio, are used by stakeholders like investors and lenders. So great care must be taken to show these assets accurately.

Next: Difference between current and fixed assets




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