What is the current asset?
Current assets, in the accounting balance sheet, represent the total value of all assets that can be re -converted to cash. There are five main types of current assets: cash, short -term investments, receivables, supplies and prepaid costs. Usually all of them can be easily converted to cash. Money that can be downloaded from a regular bank account or cash market account is qualified as cash. Assets that can be quickly converted into cash, such as the state treasury accounts and some short -term municipal bonds, are monetary equivalents. Two general criteria for determining whether the current asset is equivalent to cash is, if it matures in less than three months and if it can be converted quickly. If the company has more money at hand than it needs in the near future, it can invest part of its cash in a short -term bond. These funds can be disposed of, but requires more effort than taking cash. The company's money is working and increasing overall income.
receivables are one step further removed from cash in terms of liquidity. Once the company provides its product or service, the customer owes the company money. Until this amount is paid, it is considered a claim. Not all customers will pay for the service or product they receive; Of those customers who pay, not everyone will do so on time. If the company's receivables grow faster than its income, they have not been paid for many of its goods or services.
Inventory is also considered a current asset. Any items or services that have already been completed but have not yet been sold are considered stocks. Companies that sell physical goods usually carry an inventory. Less liquid than the first three -stroke assets, inventory links to cash - items must be sold to add cash to the company's income. Companies that provide services do not wear supplies.
PrepareAcené costs are considered to be a current asset because it reduces future costs. In general, the company can pay in advance for advertising services. It may also decide to buy more supplies than currently needed. These are examples of prepaid expenditure. Although these are not liquid assets, they reduce future expenditures - less expenses in the future may equal better lower income line.