Current Asset – Meaning and Explanation with Examples

Meaning-of-Current-Asset

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: –

Balance Sheet: Meaning, Format & Examples

 

Thanks Please share with your friends  

Comment if you have any question

Check out Financial Accounting Books ir?t=tutorstips 21&l=ur2&o=31 - Current Asset - Meaning and Explanation with Examples@ Amazon.in