Current Assets

Current assets are cash and other assets or resources that are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business

Current assets are perhaps the easiest of the various sections of the balance sheet to identify. They include:

Cash

Cash available for current operations, including coins, currency, undeposited checks (checks that have been received but have not yet been deposited in the bank), money orders and drafts, and demand deposits.

Cash equivalents

Cash equivalents. Short-term, highly liquid investments that are convertible to known amounts of cash without a significant loss in value and have maturities of 3 months or less from the date of purchase.

Marketable securities

Marketable securities classified as current assets. Marketable debt and equity securities that represent the investment of cash available for current operations. Marketable securities classified as trading securities are almost always current assets. Marketable securities other than trading securities may or may not be classified as current assets, depending on management’s intention.

Marketable debt securities classified as available-for-sale are current assets if they are considered working capital available for current operations, regardless of their maturity dates. Marketable debt securities classified as held-to-maturity are current assets only if their maturity is within one year or the length of the firm’s operating cycle, whichever is longer. Marketable equity securities may or may not be classified as current assets, depending on management’s intention.

Receivables

Receivables. Trade accounts receivable, notes receivable, and acceptances receivable. Receivables from officers, employees, affiliates and others are also current assets if they are collectible in the ordinary course of business within one year or the firm’s operating cycle.

Contract assets classified as current assets

contract assets represent an entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditional on something other than the passage of time, for example the entity’s future performance, before the entity can invoice the customer. Contract assets may be current assets or non-current assets or both, depending on the facts and circumstances such as when receipt of payment is expected, based on the agreement with the customer. Contract assets are explained in the Revenue Recognition topic in this volume.

Short-term notes receivable

Short-term notes receivable if they conform generally to normal trade practices and terms within the business.

Inventories

Inventories. Merchandise on hand and available for sale and, for a manufacturer, raw materials and work-in-process as well as finished goods. Operating supplies and ordinary maintenance material and parts are also inventories.

Prepaid expenses

Amounts paid in advance for the use of assets such as rent paid at the beginning of a rental period or amounts paid for services to be received at a future date. An insurance premium paid at the beginning of a policy period for insurance coverage to be received during the portion of the future policy period that will occur during the coming operating cycle is a current prepaid expense. Prepaid expenses are not convertible to cash, but they are classified as current assets because they would have required the use of current assets during the coming operating
cycle if the expenses had not been prepaid.

Funds that are restricted for current purposes

If cash or cash equivalents are being held for a current purpose, such as for payment of current obligations due within a year or the operating cycle, whichever is longer, or as a compensating balance to support short-term borrowing, the cash should be reported on a separate line in the current assets section of the balance sheet.