Current and Non Current Assets

Current and Noncurrent Assets

In this paper I will discuss the two particular types of assets: current and noncurrent. Also discussed will be the difference between the two and the order of their liquidity and how it applies to the balance sheet.

Assets are customarily separated into two categories, current assets and noncurrent assets. Current assets and noncurrent assets are both utilized to generate profits for a company. For us to understand what assets are we should first define what they are. Assets are resources such as computers, land, cash, buildings and other supplies owned by a company. If it adds value to a business then it can be considered an asset.

Current Assets

Cash will be the most important asset for a business. The common practice for most businesses to consider an asset as a current asset is the cutoff date that is one year from the balance sheet date. One of the major parts of the balance sheet is the Current Assets. Current assets are generally considered property that the company plans to use or sell within a 12 month cycle. Ordinarily a business will list these assets in the order in which they can be converted into cash. Some of the current assets, such as accounts receivable or prepaid rents, even though they lack in physical substance are not included in the intangible classification (Williams, Haka, & Bettner, 2005, p. 368). When a business does not have strong assets this can cause cash flow problems for them. A creditor for the company will be interested in how much the company has in current assets because they want to know what the dollars amount of assets are if they should need to be liquidated. This would be a good reason assets are so important to businesses. In addition, current assets are very important to a business as they are used to support the business in the day-to-day operations. These assets are also a vital evaluation of a company's liquidity position. When executives are evaluating the financial strength of any company the currents assets will be one of the most important factors, especially if the economy becomes weak. The current assets become the sum of cash and other things that may be thought of as cash like the accounts receivable, inventory, securities, prepaid expenses, stocks and bonds on the balance sheet.

Noncurrent Assets

Noncurrent assets also known as fixed assets. Any asset not classified as a current asset would be a noncurrent asset. The noncurrent assets are thought of as intangible assets that have no physical substance, and they are also used in the business operation. These assets are grouped on the balance sheet as within the plant assets group. One must remember that not all assets that do not have physical substance are considered as intangible assets. Accounts receivable does not have physical substance, but they are not considered intangible assets. Some such assets would be trademarks, goodwill, long-term investments and patents, reported on the balance sheet at cost. Any asset that cannot be turned into cash within one year is also thought of as a noncurrent asset. Land, equipment and buildings and other assets as such that can be kept for a longer time period is also noncurrent assets. Some of these assets would be