Current Asset

(noun)

An asset on the balance sheet, such as cash, accounts receivable, and inventory that is expected to be sold or otherwise used up in the near future, usually within one year or one business cycle, whichever is longer.

Related Terms

Examples of Current Asset in the following topics:

  • Calculating Working Capital

    • Current assets (CA) is an accounting term that refers to assets that can easily be turned into cash.
    • For example, cash is a current asset, but so are most accounts receivable.
    • Suppose that a company has current assets of $100: $20 of cash and $80 of accounts receivable.
    • They also have $50 of current liabilities.
    • Not all current assets can be used to pay off expenses of debts.

  • Calculating Expected Value

    • Net working capital is calculated as current assets minus current liabilities.
    • Current assets and current liabilities include three accounts which are of special importance.
    • The current portion of debt (payable within 12 months) is critical, because it represents a short-term claim to current assets and is often secured by long-term assets.
    • An increase in working capital indicates that the business has either increased current assets (that it has increased its receivables, or other current assets) or has decreased current liabilities, for example, has paid off some short-term creditors.
    • Current Assets - Current liabilities (excluding deferred tax assets/liabilities, excess cash, surplus assets, and/or deposit balances).

  • Assets

    • Assets on a balance sheet are classified into current assets and non-current assets.
    • On the left side of a balance sheet, assets will typically be classified into current assets and non-current (long-term) assets.
    • A current asset on the balance sheet is an asset which can either be converted to cash or used to pay current liabilities within 12 months.
    • A non-current asset is a term used in accounting for assets and property which cannot easily be converted into cash.
    • This can be compared with current assets such as cash or bank accounts, which are described as liquid assets.

  • Current Ratio

    • It compares a firm's current assets to its current liabilities.
    • Current asset is an asset on the balance sheet that 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 that will be paid within a year.
    • If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting its short-term obligations.
    • If the current ratio is too high, then the company may not be efficiently using its current assets or its short-term financing facilities.

  • Fixed Assets Turnover Ratio

    • Fixed assets, also known as a non-current asset or as property, plant, and equipment (PP&E), is a term used in accounting for assets and property that cannot easily be converted into cash.
    • This can be compared with current assets, such as cash or bank accounts, which are described as liquid assets.
    • Moreover, a fixed/non-current asset also can be defined as an asset not directly sold to a firm's consumers/end-users.
    • Its non-current assets would be the oven used to bake bread, motor vehicles used to transport deliveries, cash registers used to handle cash payments, etc.
    • Each aforementioned non-current asset is not sold directly to consumers.

  • Liquidity

    • For assets themselves, liquidity is an asset's ability to be sold without causing a significant movement in the price and with minimum loss of value.
    • The current ratio, which is the simplest measure and is calculated by dividing the total current assets by the total current liabilities.
    • However, some current assets are more difficult to sell at full value in a hurry.
    • The quick ratio, which is calculated by deducting inventories and prepayments from current assets and then dividing by current liabilities--this gives a measure of the ability to meet current liabilities from assets that can be readily sold.
    • This indicates the ability to service current debt from current income, rather than through asset sales.

  • Noncash Items

    • Fixed assets, also known as a non-current asset or as property, plant, and equipment (PP&E), is an accounting term for assets and property.
    • Unlike current assets such as cash accounts receivable, PP&E are not very liquid.
    • PP&E are often considered fixed assets: they are expected to have relatively long life, and are not easily changed into another asset .
    • Depreciation expense does not require a current outlay of cash, but the cost of acquiring assets does.
    • For example, an asset worth $100,000 in year 1 may have a depreciation expense of $10,000, so it appears as an asset worth $90,000 in year 2.

  • Total Assets Turnover Ratio

    • Total asset turnover is a financial ratio that measures the efficiency of a company's use of its assets in generating sales revenue.
    • Companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover.
    • Total assets turnover = Net sales revenue / Average total assets
    • Tangible assets contain various subclasses, including current assets and fixed assets.
    • Current assets include inventory, while fixed assets include such items as buildings and equipment.

  • Total Debt to Total Assets

    • The debt ratio is expressed as Total debt / Total assets.
    • It is the ratio of total debt (the sum of current liabilities and long-term liabilities) and total assets (the sum of current assets, fixed assets, and other assets such as 'goodwill').
    • Total liabilities divided by total assets.
    • The debt/asset ratio shows the proportion of a company's assets which are financed through debt.
    • If the ratio is less than 0.5, most of the company's assets are financed through equity.

  • Depreciation

    • It is a concept used in accounting and economics, defined as a rational and unbiased estimate of the potential market price of a good, service, or asset, taking into account the amount at which the asset could be bought or sold in a current transaction between willing parties.
    • Any business or income producing activity using tangible assets incurs costs related to those assets.
    • One such cost is the cost of assets used but not currently consumed in the activity.
    • Where the assets produce benefit in future periods, the matching principle of accrual accounting dictates that those costs must be deferred rather than treated as a current expense.
    • The cost of an asset so allocated is the difference between the amount paid for the asset and the salvage value.