Difference between Current Assets and Current Liabilities
Assets and liabilities are classified in many ways such as fixed, current, tangible, intangible, long-term, short-term etc. While analyzing the balance sheet of a company it is important to know the difference between current assets and current liabilities. Here the distinction is related to the age of assets and liabilities.
- Current assets are short-term assets either in form of cash or a cash equivalent which can be liquidated within 12 months or within an accounting period.
- They are short-term resources of a business and are also known as circulating or floating assets.
- Current assets are realized in cash or consumed during the accounting period.
- A major difference between current assets and current liabilities is that more current assets mean high working capital which in turn means high liquidity for the business.
- Examples of Current Assets – Cash, Debtors, Bills receivable, Short-term investments, etc.
- They are placed on the assets side of a balance sheet in the order of their liquidity.
Related Topic – Difference between Tangible and Intangible Assets
- Current Liabilities are short-term liabilities of a business which are expected to be settled within 12 months or within an accounting period.
- They are short-term obligations of a business and are also known as short-term liabilities.
- Current liabilities are paid in cash/bank (settled by current assets) or by the introduction of new current liabilities.
- One important difference between current assets and current liabilities related to the liquidity of a business is that more current liabilities mean low working capital which means low liquidity for the business.
- Examples of Current Liabilities – Bank overdraft, Creditors, Bills payable, etc.
- They are placed on the liabilities side of a balance sheet, usually, the principal portion of notes payable is shown first, accounts payable next and remaining current liabilities in the end.
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