Current Asset - Meaning and Explanation with Examples

Those assets which are used or utilized within the period of one year are known as Current Asset. These are also known as short term assets.

In other words, Those assets which are very easily convertible into cash or which are already available in the liquid form are known as Current Asset. 

Examples of Current Assets: -

• Cash or Cash Equivalents
  • Cash in Hand 
  • Cash at Bank 
• Inventories
  • Raw Materials 
  • Work in Progress 
  • Finished Goods 
• Receivables
  • Sundry Debtors 
  • Bills Receivables 
• Pre-Paid Expenses
• Marketable Securities 
• Accrued Incomes
• Short Term Loans and Advances 
  • Advance to Employees 
  • Advance to Vendors
• Other Liquid Assets

Importance of Current Asset: -

Current Assets are very important to the business because these are used in the day to day operation of the business. With cash and bank, we can pay our day to day petty expenses. So, every business must have an adequate amount of cash to run a business smoothly. 

Placement of a Current asset in the balance sheet: -

The placement of a current asset in the balance sheet will be shown under the group head Current Assets. These are shown in the following format of the balance sheet and highlighted with orange colour: -

Name of the Entity

Balance Sheet as on 31st March, _______
Liabilities	Amount	Assets	Amount
Current Liabilities		Current Assets
Trade Creditors		Cash in hand
Bills Payable		Cash at Bank
Outstanding Expenses		Inventories
Advance/Unearned Incomes		Bills payable
Short term loans		Sundry Debtors
Non-Current Liabilities		Prepaid Expenses
long terms loans		Accrued Incomes
Debentures		Fixed/Non-Current Assets
Capital		Building
Add:  Net profit		Land
interest on Capital		Plant & machine
Less:  Drawings		Furniture & fixture
Net Loss		Goodwill

The balance sheet can be prepared on two basis

• First is based on Liquidity 
• Second is based on Permanence 

and in two different types of format 

• Horizontal
• Vertical

To know more about them please check out our article on The balance sheet by clicking on the following link: -

https://tutorstips.com/balance-sheet/

 

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