Current Assets refer to entity’s assets that could be converted to or uses within the period of less than one years.
They are the group of liquid assets that expected to be used, consumed or converted into cash with 12 months from reporting date. In balance sheet, these group of assets are report separately from non-current assets.
Those assets included petty cash, cash on hand , cash in bank, accounts receivable, prepaid expenses, cash advance, short-term loan, inventories, and others short term investment.
Before we go detail to the definition of current assets, we should understand definition of assets first.
However, if those assets are used or sold, they will be recorded as cost of goods sold or expenses in those period in income statement.
As per IFRS, Assets are:
The Resources that controlled by the entity as the result of past event from which future economic benefits are expected to flow to the entity.
Resource : http://www.ifrs.org
In general, current assets include entity’s cash on hand, cash in bank, inventories, account receivables and others type of short-term investments.
- Cash and Cash Equivalent including cash on hand, petty cash, cash in bank, cash advance, and other noted that easily to concert into cash.
- Prepaid expenses are also current assets if they are paid for services or goods that expected to received within year. If part of those expenses are expected to be settled more than one year. Then, part of those should be classified into fixed assets.
- Account Receivables are those remaining balance from customers as the result of sales on credits.
- Inventories are mainly the stocks companies hold for its business. They include raw material, work in progress and finish goods. Different valuation methods show probably show different value at the end of the year.
- Short-term deposit from customers are those short-term deposit require by the company policies for its customer. It sometime called security deposit.
All of of these are assets are recorded only in the balance sheet however some of current assets will be records in income statement when they are used or sold.
For example, inventories are records as exchange cost of goods sold in income statement when they are sold to the customers.
Current Assets are classed in assets section in balance sheet. Back to the big picture of financial statements. Basically, there are five types of financial statements.
They are income statement, balance sheet, statement of change in equity, statements of cash flow, and the last one is Noted to financial statements. The only statements that report current assets are balance sheet.
And their classification rank from the most liquid assets to last one. For example, cash and cash equivalence are always stay on the top of current assets while the others assets like inventories or loan stay on the bottom. However, there are no role say that cash must stay on the top.
Calculation of current assets is quite simple if you know the basic of accounting equation. For example, the formula of accounting equation is:
Assets = Liabilities + Equity
Assets = Current Assets + Non Current Assets
Current Assets = Assets – Non Current Assets
- Assets here are the total net assets at the end of the period. They are the total value of net book value of assets that entity has during the period which included both current and non current. The calculation is depend on what information available for you.