Current Assets

When we start business, we need to have resources that can able to use for normal operating cycle (means 12 months or within 1 year business operations). It includes cash, money, materials, properties, and other resources. The function is vital in the financial statement and it is called current assets. When we say current assets, it refers the most liquid assets that expected to be realized or intended for sale or for consumption in the normal business operating cycle.

In the balance sheet, the current assets are extremely important in the business. Current assets represent available to finance the daily business transaction. These are the cash, cash equivalent, or anything that has monetary value unless it is restricted from being exchanged or used to settle a liability for at least 12 months.

The current assets can be defined through the example as follows:

• Cash – It is the most liquid assets among other current assets. Cash can be coins and bills that frequently called cash on hand. The well-known petty cash fund is included in cash on hand however; other company separates this account from cash or cash on hand. On the other hand, the so-called cash in bank is also under the component of cash, which includes checking and savings accounts in the bank.
• Accounts Receivable – These accounts refer to any collectible from clients or customers by providing services or delivering products.
• Inventories – These are the current assets pertain to raw materials, cash value of products or any supplies on hand that can easily converted into cash.
• Prepaid Expenses – These are the expenses paid in advance that intended to consume or to use for 12 months. Rental, insurance, licenses, and other expenses paid in advance with issued postdated cheques are the example of prepaid expenses.

Current assets are very important in management of cash flow, forecasting, controlling, and budget development, and implementation. These accounts provide the liquidity of the business that can able to pay the debt and pay all the urgent small or big payable.

It shows that current assets have vital function in the daily accounting transaction. Keep in mind before running a business you have to plan and take necessary action to achieve the successful goal of your company.