Current assets are the assets of a company that can be made liquid (turned into money) in less than twelve months. It is also called current or liquid assets
It is known as circulating because it is a type of asset that is in continuous movement, it can be sold, used, converted into liquid money or delivered as payment without too much difficulty. In addition, we can understand current assets as all those resources that are necessary to carry out the day-to-day activities of the company, such as bank money, stocks, and financial investments.
In accounting, when we analyze the balance sheet of a company, we can differentiate between assets, liabilities and equity. Within assets, we find current assets, which become effective in the short term, while non-current assets become effective in a period of more than one year.
Components of current assets
The main components of current assets are:
- Non-current assets held for sale.
- Comercial debts and other counts under charge.
- Short-term financial investments.
- Treasury (savings banks and banks).
- Short-term accruals.
How is current assets financed?
To analyze what is the best way to finance short-term assets, it is important to know the concept of working capital, which is the part of current assets that is financed with non-current liabilities, or what is the same, assets Liquids that are financed with long-term resources. We can say that the working capital is the surplus that results from the current assets of the company and that we can calculate it in two ways:
- Working capital = Current assets – Current liabilities
- Working capital = (Equity + Non-current liabilities) – Non-current assets
Now, with the latter we know that for the good daily operation of the company, current assets must be greater than current liabilities, that is, that the resources we have (current assets) are greater than short-term debts ( current liabilities) to be able to face them. However, before the latter, several situations can occur:
- Current liabilities greater than current assets: It would be a dangerous situation since we would have more short-term debts than resources to pay them.
- Current assets the same as current liabilities: We would be facing an equilibrium point in which the liquidity of the company is assured, but at the moment that some of our debtors did not pay us on time, our liquid assets would be lower than the short debts term and, therefore, we would be in the situation where current liabilities would be greater than current assets.
The balance sheet of a company is represented as follows. Assets equals liabilities plus equity. The working capital is the current assets (or current) minus the current liabilities (which are the debts due in the short term). Non-current assets were previously known as fixed assets.