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What are Current Assets?

Current Assets are items on a balance sheet that are either cash or are going to be cash in the near future. The current assets section of a balance sheet is an indication of cash flows and liquidity.

The assets are usually listed in order of liquidity, or the amount of time that it will take for them to become cash. This section includes cash, accounts receivable, prepaid expenses, inventory, supplies, and temporary investments. (The order given here is not necessarily the order of liquidity found on a balance sheet.)

An exception to the "cash or cash in the near future" rule is that supplies and prepaid expenses are considered as "good as cash" because they are necessities that are already paid for, and would have otherwise cost cash in the near future. This is the nature of accounting.

Also, the definition of a Current Asset is more finite than the "near future" time frame. It is generally something that is a cash equivalent within a year, or, if a company's operating cycle is somewhat longer than a year, but they can count on the asset being a cash equivalent within that cycle, then it is a current asset.

Keywords: balance sheet, liquidity, cycles, accounts receivable, current assets, cash equivalents, operating cycle,