What are Current Assets: Meaning, Examples, and How to Calculate

Cash & cash equivalents like petty cash, cash-in-hand, and cash-at-bank are already liquid assets, hence are considered current assets.

Inventory like raw materials, semi-finished and finished goods that a company holds, is considered current assets. These goods cannot be easily converted to cash, as they have to be sold or processed to be sold. Due to this, when calculating the quick ratio, inventory is deducted from the current assets.

Accounts receivable are the money that the company has yet to receive from customers for goods delivered. This amount should be receivable in the same fiscal year to be considered a current asset.

Prepaid expenses, like paid in advance the benefit of which will be received in the future. These cannot be considered in cash, but since they are prepaid expenses, they are added under the current assets of a company.

Companies need to maintain their current assets, like cash & cash equivalents to fund their daily operations.

By maintaining inventory and necessary goods, the company can fulfil its customers’ demand promptly.

Companies often have short-term liabilities; current assets should be maintained to repay these short-term obligations.

Companies have to maintain a healthy current asset to be able to endure any unexpected cash outflows or unfavourable economic conditions.