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Current Asset: Definition and Types

Current assets are all assets of a company that companies can sell, consume, use or spend in accordance with company provisions. The value of the asset can be converted into cash for the next one year. Current asset calculation in a must-include element in companies’ balance sheet.

This is an asset that can be easily exchanged or liquidated through cash transactions. We can infer that this asset is easy to cash because a current asset can be liquidated with cash in less than a year.

Because current asset report includes all asset and resources that can be converted to money in a short term, the report is in the form of cash. This is why the current asset is also the companies’ liquid asset. Read more below for more information on the various types of current assets.

Types of Current Asset

Bank cash and cash equivalents

Bank balance is the most current assets that a company owns. Companies can use this type of asset whenever they need funds to maintain other company assets.

Meanwhile, cash equivalents such as foreign currency, checks, petty cash, checks that didn’t deposit from customers, and other examples of the form of current assets.

Debtor and Accounts Receivable

In business, the trade cycle or operating cycle plays an important role in the company. Companies must collect money from customers who are in arrears on inventory payments so that they can maintain their finance.

Debtors and accounts receivable will determine how much inflow in the future and companies’ ability to pay their liabilities.

Inventory or stock In Trade

Inventory is the heart of every company that makes trading possible. All cash flow and sales depend on inventory availability and its demand.

Meanwhile, stocks in trade includes raw materials,  work in progress or finished goods, based on the nature of business and requirement of customers.

Deposits

Bank deposits or time deposits is some kind of money in a form of deposit which people can withdraw at some other time after one month, 3 months, 6 months, or other.

Readily Marketable Securities

There are various marketable securities available in the market and readily converted into cash. The purpose of owning a marketable securities is to make use of the idle cash.

Prepaid expenses

Often times, companies pay in advance to make sure that they get an appropriate service or product from the vendor. Therefore, they expect that they can run their business smoothly.

Because the advanced expense is not the amount of expense the moment it was being paid, the amount of money still calculated as expense in the next period.

Accrued income

It is important to collect money from debtor in a business operating cycle. However, when the payment is due, often, the money has not returned.

Promissory notes

In various business contracts, sometimes companies require fund. But, when the company’s financial is scarce, they can postpone the contract payment by handing promissory notes.

Other Receivable Income in The Next 12 Months

Current asset includes some other inflows from every business transaction. The calculation should be in the book within one year period. The example of this other receivable income are tax returns, advance to employee, etc.

Conclusion

Those are the types of current asset. The total amount of it is the sum of the value of the current asset type that a company has.

This calculation will be useful to analyze the company’s solvency ratio and its ability to face future liability. Moreover, when a company propose loan or other credit facility, the amount of current asset will take into consideration.

Accounting Software from HashMicro helps you automate your current asset calculation. With this accounting system, you can easily record and store your current asset list. You can generate reports just in a few clicks.

For more information, you can visit our website or discuss it with our software experts here.

Read more: Top 5 Accounting Software Systems in Indonesia

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