What Are Current Assets?

The current assets account is a balance sheet line item that's listed under the Assets section which accounts for all company-owned assets that can be converted to cash within one year. Assets with values that are recorded in the current assets account are considered to be current assets.

Current assets includecash, cash equivalents,accounts receivable, stock inventory, marketable securities, and prepaid liabilities. Current assets are sometimes referred to as current accounts.

How Current Assets Work

Publicly owned companies must adhere to generally accepted accounting principles (GAAP) and reporting procedures. Financial statements must be generated with specific line items that create transparency for interested parties. One of these statements is the balance sheet which lists a company's assets, liabilities, and shareholders' equity.

Current assets are always located in the first account listed on a company's balance sheet under the assets section. It consists of sub-accounts that make up the current assets account. Apple, Inc. lists several sub-accounts under current assets that combine to make up total current assets. This is the value of all current assets sub-accounts.

This section is important for investors because it shows the company's short-term liquidity. According to Apple's balance sheet for fiscal year 2023, Apple had $143 million in the current assets account that it could convert to cash within one year according to its balance sheet for fiscal year 2023. This short-term liquidity is vital. Apple could liquidate these assets to help cover its debts if it were to experience issues paying its short-term obligations.

Current assets can range from barrels of crude oil, fabricated goods, inventory forworks in progress,raw materials, or foreign currency depending on the nature of the business and the products it markets.

Types of Current Assets

Many assets are considered current by businesses throughout all industries. Most industries group their current assets into these sub-accounts but you might see others:

• Cash and cash equivalents
• Marketable securities
• Accounts receivable
• Inventory
• Prepaid liabilities/expenses
• Other short-term investments

The current asset sub-accounts are normally displayed on the balance sheet in order of current asset liquidity. Those that are most easily converted into cash are ranked higher by the finance division or accounting firm that prepared the report. The order in which these accounts appear might vary because each business can account for the included assets differently.

Cash and Cash Equivalents

Assets in the current assets account are cash or can be converted to cash quickly. Cash equivalents include certificates of deposit, money market funds, short-term government bonds, and treasury bills.

These items must not have any restrictions that inhibit their short-term liquidity

Marketable Securities

The total value of liquid investments that can be quickly converted to cash without reducing their market value is entered into the marketable securities account. It may not be possible to convert them to cash without impacting their market value if shares in a company trade in very low volumes. These shares wouldn't be considered liquid and would therefore not have their value entered into the current assets account.

Accounts Receivable

Accounts receivable is the value of all money that's due to a company for goods or services delivered or used but not yet paid for by customers. It's entered in current assets provided that the accounts can be expected to be paid within one year. Some of its receivables might not be included in the current assets account if a business makes sales by offering longer credit terms to its customers.

It's also possible that some receivables aren't expected to be collected. This consideration is reflected in the allowance for doubtful accounts, a sub-account whose value is subtracted from the accounts receivable account.

Inventory

Inventory represents raw materials, components, and finished products. It's included in the current assets account. Different accounting methods can adjust inventory, however. It may not always be as liquid as other qualified current assets depending on the product and the industry sector.

There's little or no guarantee that a dozen units of high-cost heavy earth-moving equipment might be sold over the next year. There's a relatively high chance of a successful sale of a thousand umbrellas in the coming rainy season, however.

You should view inventory with a skeptical eye for these reasons. Read through the company reports or browse the internet to determine what's going on with a company's inventory. It might be standard practice or a trend in the industry for inventory to be at specific levels.

Inventory also blocksworking capital. It can become backlogged if demand shifts unexpectedly. This is more common in some industries than in others.

Prepaid Liabilities

Prepaid expenses represent advance payments made by a company for goods and services to be received in the future. They're considered current assets. They can't be converted into cash but they're payments that have already been made and theyfree up capital for other uses. Prepaid expenses might include payments to insurance companies or contractors.

Other Short-term Investments

Many companies categorize liquid investments in the marketable securities account but some can be accounted for in the other short-term Investments account. Excess funds invested in a short-term security would put the funds to work but maintain the option of accessing them if necessary.

Current Assets vs. Noncurrent Assets

Non-current assets are those that can't be converted within one year. You might find some of the same asset accounts under current assets and noncurrent assets on a balance sheet because those same types of assets might be tied up for a longer period. They might include a marketable security that can't be sold in one year or that would be sold for much less than its purchase price.

Property, plants, buildings, facilities, and equipment are all examples of non-current assets because they can take a significant amount of time to sell. Non-current assets are also valued at their purchase price because they're held for longer times and they depreciate. Current assets are valued at fair market value and they don't depreciate.

Formula for Current Assets

The total current assets formulation is a simple summation of all assets that can be converted to cash within one year. You can add it to other liquid assets if a current asset subcategory isn't listed in this formula. Gather the current asset information from a balance sheet and add it. It's typically already totaled for you on the balance sheet under total current assets:

​Current Assets = C + CE + I + AR + MS + PE + OLAwhere:C = CashCE = Cash EquivalentsI = InventoryAR = Accounts ReceivableMS = Marketable SecuritiesPE = Prepaid ExpensesOLA = Other Liquid Assets​

Real-World Example

Leading retailer Walmart Inc.'s (WMT) total current assets for the 2024 fiscal year was $76.9 billion:

• Cash and short-term investments: $9.9 billion
• Total accounts receivable: $9.0 billion
• Inventory: $54.9 billion
• Other current assets: $3.3 billion

Microsoft Corp.'s (MSFT) total current assets for FY 2023 was $184.3 billion:

• Cash and short-term investments: $111.3 billion
• Total accounts receivable: $48.7 billion
• Inventory: $2.5 billion
• Other current assets: $21.8 billion

Financial Ratios That Use Current Assets

These ratios are commonly used to measure a company’s liquidity position. Each uses different current assets sub-accounts compared to the value of a company's current liabilities account:

• Thecurrent ratio measures a company's ability to pay its short-term obligations and considers a company's total current assets relative to thecurrent liabilities account, the value of debts that come due within one year.
• Thequick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. It divides the value of the cash and cash equivalents account, the marketable securities account, and the accounts receivable account by the value of the current liabilities account. Inventory is excluded from this calculation because inventory liquidity can vary.
• The cash ratio measures the ability of a company to pay off all its short-term liabilities immediately using cash. It's calculated by dividing the value of the cash and cash equivalents account by the value of the current liabilities account.

The cash ratio is the most conservative because it considers only cash and cash equivalents. The current ratio is the most accommodating and includes various assets from the current assets account. These multiple measures assess the company’s ability to pay outstanding debts and cover liabilities and expenses without liquidating its fixed assets.

The Bottom Line

Current assets are any that a company can convert to cash within a short time, usually one year. They're listed in the current assets account on a publicly traded company's balance sheet.

The assets that are considered current can vary by industry but they generally fall into these sub-accounts: cash and cash equivalents, marketable securities, accounts receivable, inventory, and other liquid assets.