Current Assets vs. Noncurrent Assets: An Overview
In financial accounting, assets are the resources that a company requires in order to run and grow its business. Assets are divided into two categories: current and noncurrent assets, which appear on a company's balance sheet and combine to form a company's total assets. You may think of current assets as short-term assets, which are necessary for a company's immediate needs; whereas noncurrent assets are long-term, as they have a useful life of more than a year.
- Current assets are a company's short-term assets; those that can be liquidated quickly and used for a company's immediate needs. Noncurrent assets are long-term and have a useful life of more than a year.
- Examples of current assets include cash, marketable securities, inventory, and accounts receivable. Examples of noncurrent assets include long-term investments, land, property, plant, and equipment (PP&E), and trademarks.
- Current assets are most often valued at market prices whereas noncurrent assets are valued at cost less depreciation.
- Capital gains tax applies to profits on the sale of assets held for more than a year (noncurrent assets).
Current assets are considered short-term assets because they generally are convertible to cash within a firm's fiscal year, and are the resources that a company needs to run its day-to-day operations and pay its current expenses. Current assets are generally reported on the balance sheet at their current or market price.
Current assets may include items such as:
- Cash and cash equivalents
- Accounts receivable
- Prepaid expenses
- Marketable securities
Cash and equivalents (that may be converted) may be used to pay a company's short-term debt. Accounts receivable consist of the expected payments from customers to be collected within one year. Inventory is also a current asset because it includes raw materials and finished goods that can be sold relatively quickly.
Marketable securities include assets such as stocks, Treasuries, commercial paper, exchange traded funds (ETFs), and other money market instruments.
Another important current asset for any business is inventories. It is important for a company to maintain a certain level of inventory to run its business, but neither high nor low levels of inventory are desirable. Other current assets can include deferred income taxes and prepaid revenue.
Noncurrent assets are a company’s long-term investments that have a useful life of more than one year. Noncurrent assets cannot be converted to cash easily. They are required for the long-term needs of a business and include things like land and heavy equipment.
Noncurrent assets are reported on the balance sheet at the price a company paid for them, which is adjusted for depreciation and amortization and is subject to being re-evaluated whenever the market price decreases compared to the book price.
Noncurrent assets may include items such as:
- Property, plant, and equipment (PP&E)
- Long-term investments and goodwill—when a company acquires another company
Noncurrent assets may be subdivided into tangible and intangible assets—such as fixed and intangible assets.
Fixed assets include property, plant, and equipment because they are tangible, meaning that they are physical in nature; we may touch them. A company cannot liquidate its PP&E easily. For example, an auto manufacturer's production facility would be labeled a noncurrent asset.
Intangible assets are nonphysical assets, such as patents and copyrights. They are considered noncurrent assets because they provide value to a company but cannot be readily converted to cash within a year. Long-term investments, such as bonds and notes, are also considered noncurrent assets because a company usually holds these assets on its balance sheet for more than a year.
Equal to cash or will be converted into cash within a year
Used to fund immediate or current needs
Items like cash and cash equivalents, short term investments, accounts receivables, and inventories
Valued at market prices
Tax implications: Selling current assets results in the profit from trading activities
Current assets are generally not subject to revaluation—though in certain cases, inventories are subject to revaluation
Will not be converted into cash within one year
Used to fund long-term or future needs
Items like long term investments, PP&E, goodwill, depreciation, amortization, and long-term deferred tax assets
Valued at cost less depreciation
Tax implications: Selling assets results in capital gains and capital gains tax is applied
Common revaluation of PP&E—for instance, when the market value of a tangible asset decreases compared to the book value, a firm needs to revalue that asset
Current Assets vs. Noncurrent Assets Example
The portion of ExxonMobil's balance sheet pictured below from its 10-K 2021 annual filing displays where you will find current and noncurrent assets.
Current assets generally sit at the top of the balance sheet. Here, they include receivables due to Exxon, along with cash and cash equivalents, accounts receivable, and inventories. Total current assets for fiscal-year end 2021 were $59.2 billion.
Noncurrent assets are listed below current assets. These represent Exxon's long-term investments like oil rigs and production facilities that come under property, plant, and equipment (PP&E). Total noncurrent assets for fiscal-year end 2021 were $279.7 billion.
The combined total assets are located at the very bottom and for fiscal-year end 2021 were $338.9 billion.
What Are Examples of Current Assets and Noncurrent Assets?
Examples of current assets include cash, marketable securities, cash equivalents, accounts receivable, and inventory. Examples of noncurrent assets include long-term investments, land, intellectual property and other intangibles, and property, plant, and equipment (PP&E).
What Is the Difference Between a Fixed Asset and a Noncurrent Asset?
A fixed asset is a type of noncurrent asset. Noncurrent assets include a variety of assets, such as fixed assets and intellectual property, and other intangibles. In general, a fixed asset is a physical asset that cannot be converted to cash readily. To convert a fixed asset into cash may take months or over a year. Fixed assets include property, plant, and equipment, such as a factory.
Why Are Noncurrent Assets Depreciated?
Noncurrent assets are depreciated in order to spread the cost of the asset over the time that it is used; its useful life. Noncurrent assets are not depreciated in order to represent a new value or a replacement value but simply to allocate the cost of the asset over a period of time.