Introduction
A current asset is an asset that a company grasps and can be easily sold or consumed and further embark on the conversion of liquid cash. A non-current asset is a resource that the company obtains or puts money into, but the value of that investment does not reoccur within a financial year. We will discuss the differences between Current Assets and Non-current Assets in this article.
Current Assets vs. Non-Current Assets
Current assets are equal to cash or will get converted into cash within one year. On the other hand, non-current assets or long-term assets. Non-current assets are those assets that will not get converted into cash within a timespan of one year and are non-current. The list of current assets embraces cash and cash equivalents, short-term investments, accounts receivables, inventories, and prepaid revenue. Contrarily, the list of non-current assets embraces long-term investments, plant property and equipment, goodwill, accumulated depreciation and amortization, and long-term deferred taxes. Current assets, when sold, are taken into account as trading profits. These assets are subject to corporate tax. On a contrary, whenever non-current assets are sold, that is considered a capital gain, and capital gain tax is pertinent in that case. Generally, current assets are not subject to re-evaluation. Only in several cases may inventories be subject to re-evaluation. Long-term assets, including PP&E, require to be re-evaluated by the company. In the case when the market value of a tangible asset reduces contrasted to the book value of that asset. The company requires to reassess the assets’ book value and the difference is recounted as a loss in the income statement for that period. Goodwill is not a part of current assets. Contrarily, Non-current assets can be classified into tangible assets and intangible assets. A popular example of an intangible asset is goodwill, which is generated through acquisition.
Difference Between Current Assets and Non-Current Assets in Tabular Form
| Parameters of Comparison | Current Assets | Non-Current Assets |
| Definition | A current asset is an asset that a company grasps and can be easily sold or consumed and further embark on the conversion of liquid cash. | A non-current asset is a resource that the company obtains or puts money into, but the value of that investment does not reoccur within a financial year. |
| Components | The list of current assets embraces cash and cash equivalents, short-term investments, accounts receivables, inventories, and prepaid revenue. | The list of non-current assets embraces long-term investments, plant property and equipment, goodwill, accumulated depreciation and amortization, and long-term deferred taxes. |
| Nature | Current assets are the short-term assets of a company | These assets are the long-term assets to administer the business |
| Valuation | Generally, current assets are valued on the balance sheet at market prices. | Long-term assets are valued in the balance at acquisition cost less accumulated depreciation. For intangible assets, they are valued at cost less depreciation. |
| Goodwill | Not part of current assets | Noncurrent assets can be classified into tangible assets and intangible assets. A popular example of an intangible asset is goodwill, which is generated through acquisition. |
| Tax implications | The selling of the current assets brings about a profit from business activities | Selling the long-term assets brings about capital gains, and capital gain tax is pertinent in such a case. |
| Re-evaluation | Generally, current assets are not subject to re-evaluation. Only in several cases may inventories be subject to re-evaluation. | Long-term assets, including PP&E, require to be re-evaluated by the company. In the case when the market value of a tangible asset reduces contrasted to the book value of that asset. The company requires to reassess the asset’s book value and the difference is recounted as a loss in the income statement for that period. |
What is a Current Asset?
A current asset is an asset that a company grasps and can be easily sold or consumed and further embark on the conversion of liquid cash. A current asset is a significant component for a company because it provides them a space to use the money regularly and clear the current business expenses. Specifically, the meaning of current assets can be defined as an asset that is anticipated to last only for a year or less and is taken into account as current assets.
Types of Current Assets
- Cash and cash equivalent
- Inventory
- Pre-paid expenses
- Ongoing projects
- Marketable securities
- Account receivable
The aforementioned types are the absolute list of current assets that are taken into account to examine the operation cycle of a company within one year.
Key Elements of Current Assets
The following items are considered the principal as well as the key elements of Current Assets
- Trade and other receivables
- Inventories
- Cash and cash equivalents
- Short-term investments
Current Assets Formula
For an organization, The current asset in the balance sheet can be enumerated as follows.
Current assets=Cash +Cash Equivalents +Inventory +Accounts Receivable +Market Securities +Prepaid Expenses +Other Liquid Assets
Uses of Current Assets:
- Current Assets can be utilized as apparent regular payments and bills.
- It provides a sagacity into the company’s cash and liquid position
- Investors and Creditors scrutinize the company’s current assets to comprehend the risk or profits involved in the operation.
Examples of Current Assets
- Cash and equivalents
- Short-term investments (marketable securities)
- Accounts receivable
- Inventory
- Prepaid expenses
- Any other liquid assets
Total Current Assets
A total current asset is the total of all cash, prepaid expenses, receivables, and inventory on the company’s balance sheet.
Some other formulas that are built on the total current assets formula are delineated below:
- Current Ratio = Current Assets ÷ Current Liabilities
- Quick Ratio = (Current Assets – Inventory + Prepaid Expenses) ÷ Current Liabilities
- Net Working Capital = Current Assets – Current Liabilities
- Average Current Assets = (Aggregate Assets for Current Year + Aggregate Assets for Preceding Year) ÷ 2
How Current Assets Information is Used?
Creditors are interested in corresponding current assets to current liabilities, as far as it delineates the short-term liquidity of an organization. Fundamentally, having considerably more current assets than liabilities delineates that a business should be capable to meet up with its short-term responsibilities. This kind of liquidity-related inspection can involve the use of some ratios, embracing the cash ratio, current ratio, and quick ratio.
The major problem with depending upon current assets as an assessment of liquidity is that some of the accounts within this division are not so liquid. Specifically, it may be sophisticated to immediately convert inventory into cash. Comparably, there may be some exceedingly overdue invoices within the accounts receivable number. Though there should be an offsetting amount in the allocation for doubtful accounts to symbolize the amount that is not anticipated to be collected. In this way, the contents of current assets should be carefully monitored to determine the true liquidity of a business.
How do determine Average Current Assets?
One can compute average current assets by dividing both the aggregate (total) assets of the present year plus the foregoing year by the number of years. Average Current Assets = (Assets of the present year +Assets of the preceding year) /2
What is a Non-Current Asset?
A non-current asset is a resource that the company obtains or puts money into, but the value of that investment does not reoccur within a financial year. These types of investments are stable and cannot be simply liquidated into cash and can produce economic advantages to the company for more than a year.
Similarly, the company capitalizes on the cost of the assets for a long period or many years, rather than enumerating it within the year of acquiring the asset. Non-current assets can be visible on the balance sheet of the company.
In a capital-intensive industry, including oil refining, a large portion of the asset base of a business may consist of noncurrent assets. Contrarily, a services business that needs a smidgen amount of static assets may have several or no noncurrent assets.
List of Non-Current Assets
Property, plant, and equipment: These non-current assets are consisted of both tangible and fixed assets and cannot be liquidated into cash effortlessly. Which embraces Properties like land, buildings, etc, Plant-like manufacturing companies, Equipment, and machinery.
Intangible Assets: This asset does not have a semblance and can be intellectual properties (trade secrets, copyright, trademark, etc). It is regarded as a non-current asset as it cannot be liquidated to cash within 12 months of the investment. Some instances are - Patent, Trademark, and Copyright.
Accounting for Noncurrent Assets
Some noncurrent assets, including land, may speculatively have limitless useful lives. A noncurrent asset is set down as an asset when obtained, rather than being imposed to expense at once. Depreciation, depletion, or amortization may be used to slowly decrease the amount of a noncurrent asset on the balance sheet.
There is more risk interconnected with noncurrent assets than with current assets, as long as they may reduce in value throughout their extended holding periods. An extravagant amount of decrease in value may result in an impairment charge.
How is the Balance Sheet Categorized?
Before looking into the ossification of classifying the balance sheet into current and noncurrent assets, you must comprehend the conception of the balance sheet itself. You should mark that a balance sheet can be outlined at any instance for a firm or a company. The key factors of a balance sheet embrace assets, liabilities, and some other equities of the owner. Therefore, these are further classified to list the information of earning and expenditure costs acquired within the organization. In a balance sheet, current assets are put down on top as they form the main section. They can be simply converted into cash within the next 12 months of drawing up the balance sheet. On the contrary, noncurrent assets are put down below the current assets. These assets are termed long-term investments and cannot be liquidated immediately. Instances of non-current assets embrace land, property, buildings, goodwill, trademark, etc.
Main Differences Between Current Assets and Non-current Assets in Points
- Current assets are equal to cash or will get converted into cash within one year. On the other hand, non-current assets or long-term assets. Non-current assets are those assets that will not get converted into cash within a timespan of one year and are non-current.
- The list of current assets embraces cash and cash equivalents, short-term investments, accounts receivables, inventories, and prepaid revenue. Contrarily, the list of non-current assets embraces long-term investments, plant property and equipment, goodwill, accumulated depreciation and amortization, and long-term deferred taxes.
- Current assets, when sold, are taken into account as trading profits. These assets are subject to corporate tax. On a contrary, whenever non-current assets are sold, that is considered a capital gain, and capital gain tax is pertinent in that case.
- Generally, current assets are not subject to re-evaluation. Only in several cases may inventories be subject to re-evaluation. Long-term assets, including PP&E, require to be re-evaluated by the company. In the case when the market value of a tangible asset reduces contrasted to the book value of that asset. The company requires to reassess the asset’s book value and the difference is recounted as a loss in the income statement for that period.
- Goodwill is not a part of current assets. Contrarily, Non-current assets can be classified into tangible assets and intangible assets. A popular example of an intangible asset is goodwill, which is generated through the acquisition
Conclusion
Assets are the resources needed by a company to administer and develop its business. Long-term assets are needed for long-term business goals, such as land equipment, and machinery, which are required for long-term business—current and noncurrent assets incorporated to generate the total assets required by a company.
Apart from this, current assets are the resources that are needed for running the regular activities of s business. Generally, the current assets are recounted in the balance sheet at the current or market price. On a contrary, noncurrent assets are recounted in the balance sheet at the cost price on acquisition modified for depreciation or amortization, which is subjected to re-evaluation whenever the market price reduces contrasted to the book price.
