What are Current Assets

What are Current Assets? Definition, Classification, Calculation, and Example

25/06/2021Accountants , Business

Every business needs assets for carrying out its business operations. Whether you’re a technician, doctor, business owner or a company’s director, you need to be well aware of your current assets to efficiently operate your business for generating more revenue. If you’re a new business owner or a veteran looking to polish your accounting skills, you’re at the right place as we will be discussing, what are current asset, how they are classified, how to calculate them and we’ll also see the examples of current assets to get a deep insight into it.

Read on to clear all your ambiguities on current assets.

 

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Current Assets – Definition

Current assets are those assets that can be converted into cash or liquidated within the time limit of one year and they’re listed as the first items on the balance sheet. These assets are the key component of the working capital and the current ratio. These assets help businesses to pay their ongoing and regular business expenses like rent and bills.

There are many types of current asset including cash, inventory, account receivables, prepared expense and market securities, etc. Current assets are not long-term assets as they can’t be converted into cash within one year. Long-term assets include building, machinery or copyrights.

After discussing, what are current assets. Let’s see how they’re classified.

 

Classification of the Current Assets

Current assets are included or classified in the assets section of the balance sheet. If we take it broadly, there are five types of financial statement. These are:

  • Balance sheet
  • Income statement
  • Statement of change in equity
  • Statement of cash flow
  • Notes to financial statement

Current assets are only recorded in the balance sheet. They can be the most liquidated assets and sometimes they can also be the less-liquidated assets. Like cash and equivalent of cash are on the top of the current assets that are easily liquidated whereas inventories and loans come afterwards.

 

How to Calculate Current Assets?

Calculating the current assets is pretty simple and straightforward. If you’re aware of the basics of accounting, you can easily calculate them through this formula:

 

Current Assets = Assets – Non-Current Assets

       OR

Current Assets = C + CE + I + AR + MS + PE + OLA

Here:

C = Cash

CE = Cash Equivalents

I = Inventory

AR = Accounts Receivable

MS = Marketable Securities

PE = Prepaid Expenses

OLA = Other Liquid Assets

 

Unable to calculate current assets. Let us know!

 

Examples of Current Assets​

Generally, current assets include cash on hands, cash in the bank, account receivables, inventories, marketable securities and other types of short-term investment. These also include:

what are current asset

  • Cash and Cash Equivalent are those current assets that are easily converted into cash. These are cash on hand, cash in bank, petty cash, cash advance and other assets that easily cash convertible.
  • Prepaid expenses are also classified as the current asset if the services or goods are expected to be received within the time frame of one year. If not, they’d classified as fixed assets.
  • Account receivables are also a current asset that customers are going to pay within the timeframe of one year.
  • Inventories are also current assets as they are the stocks that companies hold for their business. It includes raw material, and finished goods etc.
  • Short-term deposits are also considered current assets.

All of these need to be recorded in the balance sheet however, some may be put into the income statement when they are sold or used.

 

Quick Sum Up

To sum up, we have discussed what are current assets, how they are calculated and classified, and what are the examples of current assets. Hopefully, after reading this post you have got a clear idea of the current asset. Remember that balancing the current assets with your liabilities will be helpful for effectively utilizing the finance of your business, raise funds, and meet your day-to-day business goals.

 

If you are looking for an expert to record, manage and monitor your financial statements, look no further other than CruseBurke. We have a team of expert bookkeepers and accountants for your assistance. Don’t hesitate to get in touch with us.

 

Disclaimer: This blog is intended just for general information on current assets.


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What are Non-Current Liabilities?

08/10/2024Accounting

Wondering about what are non-current liabilities in the UK? If you dream of a smooth transition of your business affairs in the UK, having a fundamental understanding of non-current liabilities is one of the important aspects. However, the question that a beginner might ask here is, how do we define non-current liabilities in the UK? Non-current liabilities refer to the representation of a company’s financial obligation in the UK. Usually, this has a far-reaching implication and effect on the business obligation regarding managing finances. It can include overall suitability, growth prospects, and financial health of the company. Since we are living in a competitive landscape of business, managing non-current liabilities is not referred to as a luxury anymore. This is why it has become a necessity now for businesses in the UK who are trying to maintain their names in the UK business industry. In today’s discussion, we aim to talk about non-current liabilities in the UK. Several aspects and factors of this discussion will help to manage the non-current liabilities. This will eventually help to drive our business growth. Regardless of whether you are an expert or a beginner, be with us and learn to drive your business success for a better future for your business. Our team of professional members loves to hear out your business problems and find out the possible and suitable solutions quickly to the reporting in the UK. Contact us now. What are Non-Current Liabilities? Non-current liabilities in the UK are also familiar with the word long-term liabilities. In simple words, we can call them the financial obligations of business in the UK. These are normally due for more than a period of 12 months as per the balance sheet. If you aim for a long-term financial investment in your business, this type of liability is typically incurred. This can also involve business growth initiatives and other such operations as well. What are Non-Current Liabilities Types in the UK? There are different types of non-current liabilities in the UK that are categorised by the authorities. The implications and characteristics are different when it comes to each type. Here is a list and explanation of non-current liability types in the UK. This will help to develop an understanding of what is suitable for the type of business activities you are carrying out in the UK. Bonds – Government bonds: gilt-edged securities – Corporate bonds: fixed or floating rate bonds – Characteristics: fixed interest rates, maturity dates Long-Term Loans – Bank loans: term loans, revolving credit facilities – Mortgage loans: commercial property mortgages – Asset finance: leasing, hiring purchase – Features: fixed or variable interest rates, repayment schedules Obligations of Lease – Operating leases: rental agreements for assets – Finance leases: long-term leases with ownership transfer – Features: fixed or variable lease payments, lease terms Deferred Tax Liabilities – Corporation tax: deferred tax on profits – Income tax: deferred tax on income – Characteristics: temporary timing differences Obligations of Pension – Defined benefit pension schemes: guaranteed benefits – Defined contribution pension schemes: employer contributions – Features: actuarial valuations, funding requirements What are the Business Finances Impacts? Several factors are under the impact of non-current liabilities for a business in the UK. Especially when it comes to long-term sustainability, profitability, and the influence on cash flow. Here is a detailed explanation of factors of business finances that have an influence on the non-current liabilities of your business in the UK. Having an understanding of these factors will make you well-equipped and confident enough to make informed decisions for your business. Implications of Cash Flow – Regular interest and principal payments – Repayment of liabilities affects cash flow – Potential cash flow constraints Rating of Credit – Non-current liabilities affect credit score – High levels of debt reduce credit rating – Impacts ability to secure future funding Expense of Interest – Accrual of interest on non-current liabilities – Impact on profitability and earnings – Increased interest expense reduces cash flow Ratios of Finances – Debt-to-equity ratio: measures liability levels – Interest coverage ratio: assesses the ability to meet interest payments – Impacts investor and lender confidence Management of Risk – Currency and interest rate risks – Refinancing and rollover risks – Mitigation strategies: hedging, diversification Confidence of Investor and Lender – Transparency and disclosure of non-current liabilities – Impacts investor and lender trust – Affects access to future funding Long-Term Sustainability – Non-current liabilities impact business growth – High debt levels limit investment opportunities – Affects the ability to respond to market changes How to Manage Non-Current Liabilities in the UK? 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It is integral to maintain the financial stability of the business in the UK and understanding non-current liabilities will help in this regard. You will ensure to achieve the business growth and aim for long-term success. Businesses in the UK must also practice the regulatory requirements, compliance with the UK accounting standards, and factors like transparency. Moreover, some additional …

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