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What is a current asset?

A current asset is cash and any other company asset that will be turning to cash within one year from the date shown in the heading of the company's balance sheet. (If a company has an operating cycle that is longer than one year, an asset that will turn to cash within the length of its operating cycle is considered to be a current asset.)

Current assets are generally listed first on a company's balance sheet and will be presented in the order of liquidity. That means they will appear in the following order: cash (which includes currency, checking accounts, petty cash), temporary investments, accounts receivable, inventory, supplies, and prepaid expenses. (Supplies and prepaid expenses will not literally be converted to cash. They are included because they will allow the company to avoid paying cash for these items during the upcoming year.)

It is important that the amount of each current asset not be overstated. For example, accounts receivable, inventories, and temporary investments should have valuation accounts so that the amounts reported will not be greater than the amounts that will be received when the assets turn to cash. This is important because the amount of company's working capital and its current ratio are computed using the current assets' reported amounts.

Current assets are also referred to as short term assets.