Current Asset
BeginnerA current asset is an asset that a business expects to convert into cash, sell or use up within one year or within its normal operating cycle, if that is longer.
Current assets are the short-term resources a business uses to run its day-to-day operations and pay its short-term bills. They are listed first on most balance sheets, usually in order of how quickly they can be turned into cash.
The main current assets are cash and cash equivalents, short-term investments, accounts receivable, inventory and prepaid expenses. For example, a company might have cash of 80,000, receivables of 150,000, inventory of 120,000 and prepaid expenses of 10,000, giving total current assets of 360,000.
Current assets are important for judging liquidity, the ability to meet obligations as they fall due. Comparing current assets with current liabilities shows whether the business has enough short-term resources to cover its short-term debts. The difference is called working capital.
Not all current assets are equally liquid. Cash can be used immediately, receivables depend on customers paying and inventory must first be sold. This is why analysts sometimes exclude inventory when assessing a company's short-term financial strength.
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