Current asset

A current asset is intended to be sold or disposed of within the year or the company’s operating cycle. It is entered as an asset on a company’s balance sheet. It may either be actual cash or an asset with a cash equivalent. Accounts receivable, certain securities, inventory, short-term investments, and expenses which have been previously paid are also considered current assets.

Current assets, unlike long-term assets, may serve as a source of readily-available funds for operating expenses and other urgent needs.

To compute for a company’s current ratio, total current assets should be divided by total current liabilities. This is used to determine a company’s ability to meet its short-term financial obligations. It is also known as liquidity. These figures influence the company’s credit rating and may determine whether or not requested loans will be approved or how favorable the interest rates granted will be. Investors are also likely to look at how much current asset a company has before investing. This serves as a kind of reassurance that assets will be easily liquidated and distributed to stockholders in the event of a bankruptcy.

In the context of personal finance, on the other hand, an individual’s current assets are easily convertible to cash. This may be used to meet financial obligations so that the individual does not have to resort to the sale of his fixed assets. In this case, current assets can be a combination of money in the bank, cash on hand, and short-term investments. The key factor in determining whether an asset falls under this classification or not is its liquidity.

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