Assets are very essential in the business world. There are different types of assets in business but the most essential and on the top of the list are the current and fixed assets.
There are many differences in current and fixed assets and the most important are discussed below.
Current assets are those items of the business that can easily convert into cash. Current assets can convert into cash within a year. These assets are used in day to day operations of the business.
Current assets may consider the liquid assets, but Liquid assets are actually the part of the current assets which are very easily converted into cash within the 30 to 90 days. There are some business items that are current assets.
- Cash: Cash is the most essential in business and current assets because of cash works in day to day business operations. And without cash, no business can run.
- Account Receivable: Account receivable is for goods of the business received in a short period of time. The short period of time is less than a year. Account receivable is the current assets because it operates in a short period of time.
- Inventory It is the most important part of the business. Inventory is the goods in stocks. It has two types; short and long inventories. Short inventories use less than a year and included in the current assets.
- Short Term Investments Investment has two types, short and long term investments. Those investments which are for a short period of time are part of the current assets.
Fixed Assets are called noncurrent assets. Fixed assets must be more than one year. Fixed assets are the long term properties that can be psychically tangible like land, furniture, etc and also non-tangible like brand and trademark.
Fixed assets are very important for the new as well as the old business to run and operate the business easily. There are many items included in the fixed assets but some important assets are as under.
- Land The land is the most important and expensive item in the business world. The land is included in the fixed assets because it cannot be for a short period item.
- Cars and Trucks Cars and Trucks are mostly used in almost every business. In the business world, it is purchased for a long period of time for more than a year. That is why cars and trucks are included in fixed assets.
- Furniture There is no business in the world where furniture is not used. People buy the best furniture for their business and it is not for a short period of time. That is why it is included in the fixed assets.
- Building The building is the most essential and expensive item in the business world. People construct the building and also get it on rent but in both cases, it is for a long period of time, more than one year.
- Machinery In this technological world, technology plays an important role in the business world. Machinery or machines are important for every type of business either small or large. It can be a large machine or a small computer as well. Machines are used for more than one year and considered an essential part of the fixed assets.
The non-current assets which the entity possesses for the reason for continuing use, to create income, is called a fixed asset.
Current assets are characterized as the things which are held with the end goal of resale and that too for a maximum time of a year.
The conversion of fixed assets into money is impossible effectively. On the other hand, current assets are changed into money right away. Fixed assets are utilized by the organization to create products and enterprises.
Therefore, they are held for over one year. On the other hand, organizations kept current assets, in the money or in such form that can be effectively changed over into money. Hence such assets are held within a year.
Fixed assets are esteemed at net book value, for example, the original cost of the asset less devaluation. As against this, the valuation of a current asset is an expense or market value whichever is lower.
As the interest in fixed assets requires tremendous capital investment, so long haul funds are used for its procurement. In contrast to current assets, which require transient financing for its procurement.
Fixed assets can’t be pledged while current assets can be pledged, as a guarantee for allowing loans.