CURRENT ASSET

 Current asset is an item of assets on an entity's balance sheet that is either cash, a cash equivalent, or which can be converted into cash within short time.Actually it  is converted into cash within one year.It is presented into company's statement of financial position. Examples of current assets are:

    Cash
    Investments
    Prepaid expenses
     receivable
    Inventory

A current asset is normally first written  on a organisation's income statement and it will  present in the order of liquidity of business. It means that they will be appeared in the  order of cash which is including currency, checking accounts and petty cash account, temporary investments of assets, accounts receivable, inventory, supplies, and prepaid expenditure.

It is important because it is also consider to as short term assets  that the amount of each  asset not be overstated. For an example,  receivable, inventories, prepaid insurance and temporary investments of any kind of assets should have valuation accounts so that the amounts reported will not be greater than the amounts that will be received when the assets turn into cash in business. This is very important because this amount of company's working capital and its current ratio are computed using the  assets'.


These items are typically presented in the balance sheet in their order of liquidity, which means that the most liquid items are shown first. The preceding example shows current assets in their order of liquidity.

Creditors are interested in the proportion of current assets to current liabilities, since it determind the short-term liquidity of an entity. In essence, having substantially more current assets than liabilities indicates that a business should be able to meet its short-term obligations. This type of liquidity-related analysis can involve the use of several ratios, include the following:

    Cash ratio
    Current ratio
    Quick ratio



Current assets that a business owns  are likely to be used up or converted into cash within one year or short time. The most common line items in this category are cash and cash equivalents, short-term investments,  receivable, inventories, and other various  assets.

 Cash Equivalents: This  item doesn't necessarily refer to actual bills sitting in a cash register account. Generally, cash is held in low-risk, highly liquid investments such as money market funds in business. These holdings can be liquidated quickly within little or no price at risk. This is considered money that can be used for many purpose's the company wants.

Short Term Investments: It represents money invested in bonds or other securities that have less than one year to maturity and earn a higher rate of return than cash equivalent
.
Receivable. Think that receivables as bills that a company sends its customers for goods or services it has provided but for which the customer has not yet been paid but is expected to pay within the next years. In other words these are sales  that haven't been paid for yet within cash. Accounts receivable are shown as a net amount of what a company expects to ultimately collect, because some customers are likely not to be paid.

Inventories. Where are many different types of inventories including raw materials, partially finished goods, and finished products that are waiting to be sold in market.

 The cash that was used to create inventory can't be used for anything else until it has to be  sold. Thus, another important thing for investors to monitor is how fast a company is able to sell its inventory items.