What are current assets? All information about liquid assets
Current assets are an indispensable asset in every business. Let's join 1C Vietnam to learn detailed information about what current assets are through the definition, role as well as the exact formula for calculating average current assets through the article below!
1. What are current assets?
Current assets are assets that are easily converted into cash or hold value for a short period of time. Liquid assets include cash, bank accounts, stocks, bonds and other forms of investment that can be quickly sold and purchased in financial markets.
Liquid assets play an important role in financial and investment management, providing flexibility and the ability to respond quickly in emergency situations or changes in the economic environment.
2. The importance of current assets in the balance sheet
Current assets appear regularly on the balance sheet, which is a basic financial management tool that helps monitor and evaluate the financial position of a business or organization. Here are some reasons why current assets are important on the balance sheet:
2.1 High liquidity
Current assets are quickly convertible into cash or assets and can be used immediately. This helps businesses maintain high liquidity and be able to quickly respond to financial needs for daily operations of the business.
2.2 Meet short-term payment obligations
Current assets meet all of the company's short-term payment obligations. These obligations include payments to suppliers, payroll and debt payments. In case the company lacks short-term assets to meet these obligations, the company may face financial difficulties.
2.3 Factors to evaluate the company's financial situation
Current assets are one of the popular indicators used to evaluate the financial situation of a business. If a business owns a large amount of liquid assets, it is often considered stable and capable of overcoming economic challenges. On the contrary, if a business lacks liquid assets, it may face difficulty maintaining operations during periods of economic fluctuation.
2.4 Basis for making investment decisions
Current assets serve as the basis for businesses to make investment decisions. Owning a large enough amount of liquid assets helps businesses have flexibility in seizing new opportunities and expanding business scale.
3. Types of current assets in businesses today
There are many types of current assets that a business can own to support its business operations. Below are some popular types of liquid assets today:
- Cash and cash equivalents: Includes cash and assets that are easily converted into cash, such as bank accounts.
- Inventory: Includes goods and products that a business produces or purchases for sale.
- Accounts receivable: The amount of money a business is waiting for customers to pay for goods or services provided. This property is especially important for companies that apply credit policies to customers.
- Prepaid expenses: Expenses that a company has paid in advance, such as insurance premiums or rent. This expense is considered a short-term asset because the benefits are realized within one year or less.
- Short-term investments: Investments that the company plans to accumulate over a year or less, such as stocks or bonds. This is considered highly liquid money and can be easily converted into cash.
4. Accurate formula for calculating average current assets
The exact average current assets are usually calculated using the following formula:
Current assets = Cash + Bank deposits + Receipts + Liabilities + Inventory + Short-term investments + Prepaid expenses
In the context of each business, the corresponding number of units can be the quantity of goods, products, services, or any other unit that the business uses to measure its business volume.
5. Distinguish between current assets and fixed assets
Properties | Movable assets | Fixed assets |
General features | Convert to cash quickly | Difficult to convert into cash |
Used Time | Short | Castle |
Purpose | Used in daily business operations | Used to produce and provide products/services |
Pricing | Priced at market value or invoice value | Priced at invoice value or re-priced |
Asset type | Cash, short-term assets, stocks, bonds, other financial investments | Land, buildings, equipment, machinery, vehicles or other physical assets |
Depreciation | There are no regulations | There are depreciation rules |
Risk | Low risk | Risks |
In summary, the article has answered what current assets are as well as provided an accurate formula for calculating average current assets. In the age of technology 4.0, businesses need to manage mobile assets professionally, and can use advanced software such as 1C:Company Management. This is a comprehensive business management software provided by 1C Vietnam, possessing many outstanding features such as cash management, bank deposits, reasonable revenue and expenditure planning; Monitor debt as well as update loans and debts that need to be paid each period. Please contact 1C Vietnam immediately via Hotline: (+84)2471088887 or Email sales@1c.com.vn to hear detailed information about this optimal solution.