Current assets are assets which a company expects to sell, use-up, or otherwise convert to cash in the next year. Current assets are one of two broad categories of assets reported on companies' balance sheets - the other is long-term assets. Current assets include:
- Cash
- Inventory: Includes inventory of raw materials and finished goods
- Short-term investments that can be converted to cash quickly, such as T-bills held by the company
- Receivables (money owed to a company, usually as payment or goods or services)
- Office Supplies
Net current assets or Working capital, calculated by subtracting current liabilites from current assets, is a measure of the assets the company has at its disposal in the short term to fund operations - other kinds of assets such as equipment, real estate and goodwill are less easily converted to cash.
By the principle of prudence, current assets are reported in the balance sheet at their least favorable valuation. Short-term investments, for example, will be recorded at the value that the firm paid for it or the market value, whichever is lower. It is only after selling the position that the company recognizes any gains. Similarly, inventory of raw materials is valued at the lower of cost of purchase and market price; and inventory of finished goods are recorded at the lower of cost of production and selling price.
Current assets
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