A:

The resources owned by a business can be divided into two categories: current assets and non-current assets. Some assets are considered liquid, meaning they can be converted into cash relatively quickly. Other assets either cannot be converted or are not expected to be converted into cash. Non-current assets can be considered anything not classified as current. The primary determinant between current and non-current assets is the anticipated timeline of their use. Current and non-current assets are listed on the balance sheet. They appear as separate categories before being summed and reconciled against liabilities and equities.

Defining an Asset as Current

Current assets are expected to be sold, loaned out, leased, consumed or otherwise used to create income within one year of the date of the balance sheet or the operating cycle of the business. These assets are separated from other resources because a company relies on its current assets to fund ongoing operations and pay current expenses. Examples of current assets on a typical balance sheet are cash, accounts receivable, prepaid expenses, inventory and marketable securities.

Role of Non-current Assets

The formal definition of a non-current asset is any resource not expected to be recovered, meaning monetary value is extracted from it or it is no longer useful, until more than 12 months past the balance sheet date. There are some differences in the treatment of non-current assets between U.S. GAAP and IFRS. Examples of non-current assets include land, property, capital equipment, trademarks, long-term investments and even goodwill. Since these resources last for a very long time, companies spread their costs over several years. This helps avoid huge losses during years when capital expansions take place.

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