Current And Non Current Assets, The Order Of Liquidity

770 words - 3 pages

PAGE PAGE 5 Current and Non-Current Assets
Current and Non-Current AssetsLaura GabbardUniversity of PhoenixACC 400 Accounting for Decision MakingPeter IovenoApril 13, 2008Current and Non-Current AssetsCurrent assets are items on a balance sheet. According to Investorwords, current assets equal "…the sum of cash and cash equivalents, accounts receivable, inventory, marketable securities, prepaid expenses, and other assets that could be converted to cash in less than one year," (2008). If a company goes bankrupt, current assets are easily liquidated. Additionally, current assets are a source of funds for most companies.The importance of current assets to businesses is that these assets fund daily operations and expenses. Not only are current assets expected to be turned into cash, they many be sold, or consumed within a year. By contrast, non-current assets are not "…easily convertible to cash or not expected to become cash within the next year," (Investorwords, 2008). Examples of non-current assets include fixed assets, leasehold improvements, and intangible assets, (Investorwords, 2008).The differences between current and non-current assets include time and form. Current assets are intended for use within one year, while non-current assets are not. If a company owns land and a building as the center of its business, that company is not going to convert the land and building, non-current assets, to cash within a year. The company keeps both the land and building for longer time-periods. Another example of the difference between the two types of assets is equipment, or machinery. The company uses the equipment for its daily operations, and will not be done with the equipment within a year. The equipment is a non-current asset. Equipment and machinery belonging to a company depreciates over time. This is another characteristic of many non-current assets. Current assets do not depreciate within a year.Dividing assets and liabilities into current and non-current allows for the calculation of working capital. This is the amount of current assets minus current liabilities. Working capital is the relatively liquid part of the company's financial position.The Order of LiquidityAssets are listed on the balance sheet in order of liquidity. Current assets come first. This order begins with cash and cash equivalents, including temporary investments maturing within 90 days, but excluding cash restricted for purposes other than meeting current obligations. Next in the order are short-term investments. Debt security investments are classified as trading, available-for-sale, or held-to-maturity securities. Investments in equity securities are classified as...

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