Next video:
Loading the player...

Current assets are assets that the company could convert into cash within a year in the normal course of business. Current assets include cash, accounts receivable, inventory, marketable securities, prepaid expenses and anything else that can easily be turned into cash. Current assets are used to calculate financial ratios such as the current ratio, which divides current assets by current liabilities. To see any company’s current assets, just look at its balance sheet.

John owns a small publishing company. Here are what his company’s current assets consist of:

Cash from sales - $30,000.

Money in checking and savings accounts - $50,000.

Short-term investments; in this case, U.S. Treasuries - $50,000.

Accounts receivable, or payments the company is waiting to receive for publishing services sold on credit - $20,000.

Inventory: $0, because John publishes e-books and does only print-on-demand for paper and hardback books.

Prepaid expenses - Payments for services John’s company expects to receive in the near future. These include rent - $0, because John operates out of a home office, $2,000 in professional insurance premiums, and $10,000 in taxes.

Total current assets: $162,000

Not included in John’s current assets are items that will not be converted into cash, sold or consumed within a year - such as John’s computers, office furniture, and the value of his solid reputation in the publishing world.

Related Articles
  1. Investing

    Liquidity Measurement Ratios

    Learn about the current ratio, quick ratio, cash ratio and cash conversion cycle.
  2. Investing

    What Are Quick Assets?

    A company’s quick assets can be easily converted into cash.
  3. Managing Wealth

    What's an Asset?

    An asset is a resource with economic value.
  4. Investing

    Current Liabilities

    Current Liabilities are company debts due within one year or one operating cycle, whichever is greater. An operating cycle is the time it takes a company to purchase inventory and convert it ...
  5. Investing

    Do Your Investments Have Short-Term Health?

    If a company is strong enough to survive tough times, it is more likely to provide long-term value.
  6. Investing

    Reading the Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  7. Managing Wealth

    Explaining Financial Assets

    A financial asset is intangible property that represents a claim on ownership of an entity or contractual rights to future payments.
  8. Investing

    Understanding Financial Liquidity

    Understanding how this measure works in the market can help keep your finances afloat.
Hot Definitions
  1. Dow Jones Industrial Average - DJIA

    The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange ...
  2. Revolving Credit

    A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is ...
  3. Marginal Utility

    The additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important ...
  4. Contango

    A situation where the futures price of a commodity is above the expected future spot price. Contango refers to a situation ...
  5. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  6. Acid-Test Ratio

    A stringent indicator that indicates whether a firm has sufficient short-term assets to cover its immediate liabilities. ...
Trading Center