Current asset
Encyclopedia
In accounting, a current asset is an asset
on the balance sheet
which can either be converted to cash or used to pay current liabilities within 12 months. Typical current assets include cash
, cash equivalents, short-term investments, accounts receivable
, inventory
and the portion of prepaid liabilities which will be paid within a year.
On a balance sheet
, assets will typically be classified into current assets and long-term assets.
The current ratio
is calculated by dividing total current assets by total current liabilities
. It is frequently used as an indicator of a company's liquidity, its ability to meet short-term obligations.
Asset
In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...
on the balance sheet
Balance sheet
In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A...
which can either be converted to cash or used to pay current liabilities within 12 months. Typical current assets include cash
Cash
In common language cash refers to money in the physical form of currency, such as banknotes and coins.In bookkeeping and finance, cash refers to current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately...
, cash equivalents, short-term investments, accounts receivable
Accounts receivable
Accounts receivable also known as Debtors, is money owed to a business by its clients and shown on its Balance Sheet as an asset...
, inventory
Inventory
Inventory means a list compiled for some formal purpose, such as the details of an estate going to probate, or the contents of a house let furnished. This remains the prime meaning in British English...
and the portion of prepaid liabilities which will be paid within a year.
On a balance sheet
Balance sheet
In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A...
, assets will typically be classified into current assets and long-term assets.
The current ratio
Current ratio
The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firm's current assets to its current liabilities...
is calculated by dividing total current assets by total current liabilities
Current liability
In accounting, current liabilities are often understood as all liabilities of the business that are to be settled in cash within the fiscal year or the operating cycle of a given firm, whichever period is longer...
. It is frequently used as an indicator of a company's liquidity, its ability to meet short-term obligations.