These are assets which are held by a business for a short period, mainly a year, or within an accounting cycle of a business. Current Assets are a balance sheet account that can either be converted to cash or used to pay current liabilities within the above mentioned time frame.
These are typically seen as those assets which can be easily converted to cash to pay off current liabilities and outstanding debt payments.
Examples of current assets include Cash, Bank, Debtors, Stock, Prepaid Expenses, etc. They are shown on the Assets side of the balance sheet. Current Assets are also called circulating assets, circulating capital or floating assets.
More current assets means more liquidity, this is simply because they are used day in and day out to pay off a firm’s usual expenditure which is important for its operations. Such expenses include utility bills, short-term debts, overheads etc. Current ratio which can be calculated as CA/CL also highlights the importance of having enough short-term assets Vs. short-term liabilities.
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