Introduction
Current assets are a very important part of a businesss financial statements, and understanding the different types of current assets can help corporations better understand their financial position. Current assets are cash and any other asset that can be converted into cash within a year. This includes investments such as stocks and bonds, as well as inventory and accounts receivable. Companies use current assets to fund short-term operations and activities, such as day-to-day operations and debt payments.
Cash
The most obvious and important current asset is cash. Cash is the currency of business and essential to operations. Companies must have enough cash to pay the bills, and to finance operations and other activities. Cash is also the most liquid asset, meaning it can be quickly and easily converted into other forms of value.
Investments
Another type of current asset is investments. Investments come in the form of stocks and bonds, and can provide a business with additional capital. Stocks and bonds can be sold quickly and are often used as a source of borrowing, or to raise additional capital.
Inventory
Inventory is also considered a current asset and includes anything a company owns that is intended for sale. This could include raw materials, work in process and finished goods. Inventory is an important asset because it can be quickly turned into cash. In order to maintain a high level of inventory, companies must have a good understanding of their inventory management and forecasting processes.
Accounts Receivable
Accounts receivable is money owed to a business by its customers. This money will eventually be turned into cash, but it can take some time for the customer to pay the bill. Because of this, accounts receivable are a current asset until the payment is received.
Conclusion
Current assets are an important part of a company’s overall financial statement. Companies use current assets to finance operations and other activities, such as debt payments. Common types of current assets include cash, investments, inventory and accounts receivable. By understanding current assets and how they don’t affect their financial statements, companies can gain insight into their overall financial position and make informed decisions.
