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Current & Non Current Assets Paper What Are Current & Non Current Assets? What Differs B/W Current & Non Current Assets? What Is The Order Of Liquidity? How Does The Order Of Liquidity Apply To The Balance Sheet?

836 words - 3 pages

Current and Non-Current Assets PapernameACC/400: Accounting for Decision MakingMay 10, 2010instructorCurrent and Non-Current Assets PaperAssets are "resources owned by a business" (Kimmel, Weygandt & Kieso, 2007, p. 10) which are expected "to increase the value of a firm or benefit the firms operations" (Investopedia, 2010, para. 3). Assets are necessary because they are used to fund operations and expenses of a business. Assets are divided into two categories, current and non-current, which will be compared and contrasted in the paper. Also discussed in the paper will be the order of liquidity and how the order of liquidity applies to the balance sheet.CompareAssets hold value for a company and can be converted to cash or used up by a company.Assets are classified into two categories, current and non-current. Classifying assets is helpful because it helps determine if the company has enough assets to pay its debts when they come due (Kimmel, Weygandt & Kieso, 2007).Current AssetsCurrent assets are "assets that a company expects to convert to cash or use up within one year" (Kimmel, Weygandt & Kieso, 2007, p. 49). Current assets are also referred to as short-term assets. Examples of current assets are: cash, accounts receivable, notes receivables, marketable securities, prepaid assets, and other liquid assets that can be readily converted to cash (Investopedia, 2010).Non-Current AssetsNon-current assets are assets that will not be converted to cash or used up within one year. Non-current assets are also referred to as long-term assets. Examples of non-current assets are: leasehold improvements, long-term investments, long-term notes receivable, intangible assets, and fixed assets such as property, plant and equipment (Simple Studies, 2010).ContrastThe difference between current assets and non-current assets is the time in which the asset will be converted to cash. Current assets are converted or used within one year, or the normal operating cycle of the company. Conversely, non-current assets are not converted to cash and held for more than one year, or the normal operating cycle of the company. Non-current assets are usually "more profitable than current assets, but they also entail more risk because they are more difficult to turn into cash and are likely to fluctuate in value more than current assets" (The Free Dictionary, 2010, para. 2).Order of Liquidity and Application to Balance SheetLiquidity is "the ability to convert an asset to cash quickly" (Investopedia, 2010, para. 2). Order of liquidity is the listing of items on the balance sheet in the order in which they are expected to be converted into cash. Within each category, items are also listed from the most liquid to the least liquidCurrent assets are listed before non-current assets because they can be more easily converted. In current assets the order of liquidity is cash,...

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