Business, Legal & Accounting Glossary
An asset that is expected to be converted into cash within the trading cycle.
A current asset is an asset that is expected to be converted into cash or have all of its benefit realized within one year. Examples include cash (duh), accounts receivable, and prepaid expenses. The total is used as the numerator in the current ratio metric.
In accounting, a current asset is an asset on the balance sheet which is expected to be sold or otherwise used up in the near future, usually within one year, or one business cycle – whichever is longer. Typical current assets include cash, cash equivalents, accounts receivable, inventory, the portion of prepaid accounts which will be used within a year, and short-term investments.
On the balance sheet, assets will typically be classified into current assets and long-term assets.
The current ratio is calculated by dividing total current assets by total current liabilities. It is frequently used as an indicator of a company’s liquidity, its ability to meet short-term obligations.
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This glossary post was last updated: 4th August, 2021 | 26 Views.