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.
Calculating fixed assets is important because it can fund business operation and routine expense.
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.
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 are not deposited from customers, and others are 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.
Bank deposits or time deposit is money in a form of deposit which can be withdrawn in some other time after one month, 3 months, 6 months, or other.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.
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 is still calculated as expense in the next period.
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.
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.
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 be taken into consideration.
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