What are Current Assets

A current asset is a highly liquid asset which is expected to be used up within a short period time. Examples of current assets include cash, inventories of goods, accounts receivable ( in other words, invoices which have been issued for prior delivery of goods or services and are expected to be paid soon), and securities which can readily be sold.

In accounting, a company’s assets are categorized as either current assets or long-term assets. Long-term assets are such things as property and items of capital equipment.

The figure for the value of current assets is also used in conjunction with the figure for current liabilities to produce another figure called current ratio. A company’s current ratio is its current assets divided by its current liabilities. Current ratio is regarded as one of the best indicator’s of a company’s liquidity, that is its ability to cope with its financial burdens in the short term, such as the need to pay the bills of its suppliers, interest on any debt it has or the wages of its staff. Companies can be generally profitable yet run into catastrophic difficulties in the short term through lack of cash.

Industries tend to vary significantly in their need for levels of short term capital.

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