Definition:
Permanent Current Assets can be described as assets that are supposed to be maintained by the business over the course of time in order to ensure that the company is able to run its operations. These assets are considered to be current assets that tend to stay persistent on the balance sheet of the company over the course of time.
These are the base accounts based which are carried forward from one year to another, and their sustenance is simply proof of the fact that the business is maintaining itself for the near future. Regardless of the fact that the figures within these accounts change and fluctuate from one year to another, yet these categories of accounts will stay intact.
However, they are still classified as ‘current’ assets, because they are expected to convert into cash over the period of the current year. In other words, they are categorized as current assets because the time to the liquidation of these current assets is within a time frame of 12 months, and hence, by definition of current assets, they are classified as such.
Example of Permanent Current Assets
Permanent Current Assets are classified as assets that are consistently presented on the balance sheet from one year to the next. Some examples of permanent current assets include the following:
- Inventory: This mainly includes the inventory that is held by the company for purposes of reselling (in the case where the company is a trading concern) or inventory that is in the form of finished goods, ready to be sold to the market (if the businesses is a manufacturing concern). It would make sense for the businesses to have inventory at any given point in time because it is representative of the fact that the company is a going concern.
- Accounts Receivable: During the normal course of the business, a lot of transactions are carried out on credit. In this case, businesses have certain receivables that need to be collected from the customers of the business. This is an account that is carried forward from one year to the next, and it is highly unlikely for businesses to have absolutely no receivables at the end of the particular business year.
- Cash: Cash in Bank or cash in hand is the running balance that every company needs to maintain in order to pay day-to-day expenses. This includes petty cash, as well as all the current accounts that the business is maintaining. It is necessary for the bare survival of the businesses, and hence, it is considered as a permanent current asset, because it tends to exist with the business at all times.
Permanent Current Assets vs Temporary Current Assets
The underlying difference between permanent current assets and temporary current assets is the fact that temporary current assets, as suggested by the name, are current asset classes that exist on the financials for a short while.
A business may, or may not have temporary current assets at the end of a given financial year. Just like permanent current assets, they are assets the utility of which is expected to be derived within a period of 12 months. Hence, it is classified as a current asset.
In the same manner, it can also be seen that temporary current assets tend to fluctuate with time, and may or may not exist, at all on the balance sheet.
Temporary assets can be defined as any current asset that is not pivotal for the company’s existence, and therefore, having those assets are good, but is not entirely essential for the survival of the company.
Example of Temporary Current Assets
All current assets which are on a temporary basis on the balance sheet of the company are categorized as temporary current assets. Some examples of temporary current assets are as follows:
- Seasonal inventory items: Depending on the nature of the business involved, it can be seen that business often has inventories that are not really finished goods, but are kept either to upsell inventory or for packaging purposes. Therefore, since they are only present with the company for a shorter time duration, they are classified as temporary current assets.
- Prepaid Rent (or any other utility): It often occurs that businesses pay an excess of utility, or rent, during the normal course of the business. Hence, in this regard, it is quite important to note that these prepaid entries are considered to be temporary, since they do not always exist on the books, and only occur occasionally.
Therefore, these current assets are categorized as temporary current assets, because they may or may not be carried forward from one year to another.