Everything you want to know about current assets.

You can determine the liquidity of any institution by examining its current assets, which represent the financial value that can be converted into cash, including short-term assets that the institution can dispose of. These assets can be found in the institution’s financial center, which classifies and identifies their different types and expresses the financial capacity of the institution to bear its payments and expenditures.

Therefore, the classification of current assets and knowledge of the institution’s liquidity can be determined by examining its financial center, as well as the differences between current and fixed assets, their calculation method, and all questions related to current assets, which will be explained in detail in this article.

This can be clarified by discussing:

• What are current assets?
• Types of current assets
• Different examples of current assets
• How to calculate current assets?
• The difference between current assets and non-current assets
• What is the difference between current assets and current liabilities?
• Common questions about current assets

Current assets are properties and values that are frequently and rapidly traded in the commercial cycle, including cash, accounts receivable, securities, stocks, bonds, inventory, amounts due, prepaid payments, and other assets that can be converted into cash within a short period of time, up to one year. Current assets are an important element in the financial liquidity analysis of companies and institutions, as they represent the ability to bear their short-term payments and meet their financial obligations.

The importance of current assets can be summarized in the following points:

• Current assets represent the immediate ability to convert financial value into cash within a short period of time, allowing institutions to meet short-term financial obligations and finance their various activities.
• Current assets are a fundamental element in the financial liquidity analysis of institutions, as they represent an indicator of the institution’s ability to bear its payments and meet its financial obligations in the short term.
• Current assets include a number of properties and values that are frequently and rapidly traded in the commercial cycle, such as securities, inventory, and amounts due, which help determine the total value of the institution and determine the basis of the company’s book value.
• Current assets help finance the operational and investment activities of institutions, such as production, distribution, marketing, research, and development, and enable institutions to finance their new projects and achieve sustainable growth.
• Current assets can be used as collateral to obtain financing and loans from banks and other financial institutions, as these assets provide a guarantee for the payment of short-term obligations. Therefore, current assets are essential in any institution, and business owners and accountants try to maximize their value in the financial center.

Types of current assets:

There are many types of current assets that can be classified into several categories. These categories include:

• Cash, debit accounts, checks, and bank transfers: These assets are the most liquid and enable institutions to make immediate payments.
• Tradable securities, such as stocks, bonds, and financial certificates: These assets are the most common and enable institutions to obtain new funds by selling these securities.
• Inventory, raw materials, finished products, and expired items: These assets are important for companies that have manufacturing or commercial activities, as they represent the total value of products that can be sold within a short period.
• Due payments and prepaid payments, such as installments, fees, and taxes: These assets help determine the short-term financial obligations of institutions and estimate their financial liquidity.
• Short-term loans and receivables, such as borrowed funds and receivables from customers and suppliers: These assets are important for financing the activities of institutions and enabling them to invest in new projects.
• Other assets that can be converted into cash in a short period, such as other financial assets like cash deposits, cash withdrawals, and tradable investments: These assets include more properties owned by institutions that can be converted into cash in a short period

In general, the types of tradable assets that institutions and companies own vary based on their activities and the nature of their business operations. Institutions can analyze these assets separately to determine their financial liquidity and their ability to meet short-term financial obligations.

Examples of current Assets:
Some examples can be illustrated in the following table:

How to Calculate Current Assets:

Current assets can be calculated using the financial statements of the company or organization, which include the following statements:

• Balance Sheet: The balance sheet is an important financial statement that provides a detailed breakdown of the assets of the company or organization. In the balance sheet, current assets are classified separately, and the value of each category of these assets is determined. This includes cash, debit accounts, trading securities, inventory, due payments, prepaid payments, and other current assets.
• Cash Flow Statement: This statement aims to analyze the cash flow and financial flows of the company during a certain period. It determines the revenue, expenses, and current cash flow of the company.
• Income Statement: The income statement contains a detailed breakdown of revenue and expenses during a certain period, helping to determine the amounts due and paid for current assets.

In general, all financial statements mention current assets and their values, and companies and organizations can use these statements to analyze the financial liquidity of the company and determine its ability to meet short-term financial obligations.

The Difference Between Current and Non-Current Assets:

Current assets differ from non-current assets in terms of nature, time frame, and purpose of ownership. The differences between them can be summarized as follows:

• Nature: Current assets are assets that can be converted into cash within a short period of time, while non-current assets are assets that companies own for a longer period and cannot be easily converted into cash.
• Time frame: Companies own current assets for a short period and use them to meet short-term financial obligations, while non-current assets are owned by companies for a long period and are used to achieve long-term investment goals.
• Purpose of ownership: Current assets are used to meet short-term financial obligations, such as payments to suppliers, employees, taxes, and fees, while non-current assets are used to achieve long-term investment goals, such as investing in company activities, expanding businesses, and acquiring other companies.
• Accounting classification: Current assets are classified on the first side of the balance sheet, while non-current assets are classified on the second side of the balance sheet.
• Convertibility to cash: Current assets can be easily converted into cash within a short period of time, while non-current assets can only be converted into cash with difficulty and after a long period of time.

In general, current assets represent the most liquid assets that companies own for a short period, while non-current assets represent assets that companies own for a longer period and use to achieve long-term investment goals.

The Differences Between Current Assets and Current Liabilities can be summarized in the following table:

In general, the main difference between current assets and current liabilities is that current assets represent assets that can be converted into cash within a short period of time, while current liabilities represent financial obligations that must be paid within a short period of time. Current assets are generally used to meet short-term financial obligations, while current liabilities are paid to fulfill short-term financial obligations.

Frequently Asked Questions about Current Assets:

Are loans considered current assets?

Loans cannot be generally classified as current assets. This depends on the time available for repayment of the loan and the repayment terms agreed upon between the parties. If the loan is to be repaid within a short-term period and is classified as a short-term loan, it can be classified as a current asset in the budget. In practice, loans are classified as current or non-current assets based on the terms and conditions agreed upon between the parties. Companies can classify loans as current assets if they are due for repayment within a short-term period and classify them as non-current assets if they are due for repayment over a long-term period.

What is the relationship between working capital and current assets?

Working capital is one of the most important financial indicators used to analyze the financial liquidity of companies and institutions. Working capital is calculated by subtracting current liabilities from current assets, and the difference between them represents the company’s overall ability to finance its daily activities. Current assets are part of working capital, as they are used to meet short-term financial obligations such as paying salaries and other obligations to suppliers and creditors. The amount of current assets in working capital increases liquidity for the company, providing more liquid funds that can be used to finance daily business activities. It is important for companies to have sufficient current assets in working capital to meet short-term financial obligations and maintain continuous cash flows. When current assets exceed current liabilities, this indicates that the company has sufficient liquid funds to finance its daily activities, reflecting positive aspects of the financial liquidity and stability of the company.

Is inventory considered a current asset?

Inventory is treated as a current asset as long as the company intends to sell it within a year because inventory is the primary source of revenue and is considered highly liquid compared to non-current assets.

What is net current assets?

Net current assets are the remaining amount of the total value of current assets after the repayment of debts (current liabilities), also known as working capital. Its value can be positive or negative and is an indicator of the business operations of the company. If current assets exceed current liabilities, this means that the company is able to repay its debts. If current liabilities exceed current assets, this indicates that the company is unable to repay its debts.