Current assets are the foundation of the firm's operations

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:55

Current assets are the funds of enterprises, which are reflected in the balance sheet in the asset. Current assets is a concept that characterizes the totality of the material assets of an enterprise that serve production and commercial activities and are entirely consumed in one production and economic cycle. Working capital is classified according to several criteria.

Current assets include production assets, assets in circulation and others. Industrial current assets are raw materials, consumables, semi-finished products, spare parts, containers, etc. They also include deferred costs and work in progress. Assets in circulation are funds that have already been invested in finished but not yet shipped products, receivables, as well as free funds on accounts and on hand. Other current assets - this is the cost of damaged, missing, but not yet written off inventories, the amount of excises, which subsequentlydeductible, and more.

According to the period of operation, a constant and a variable share of current assets are distinguished. The constant part is a share that does not depend on seasonal and various other jumps in the company's production activities and is not associated with the creation of inventories of seasonal storage of goods and materials. This is an irreducible minimum that an enterprise needs for uninterrupted functioning. A variable share is a part of assets that changes depending on seasonal fluctuations in the volume of production and sales of products, as well as on the need to create seasonal stocks of goods and materials.

According to the level of liquidity they distinguish:

• Current assets that are absolutely liquid. These include assets that do not need to be sold and represent a ready means of payment - money.
• Highly liquid current assets that can be freely and very quickly (up to one month) converted into money without serious losses from the market value. As a rule, these are short-term investments, receivables and more.
• Medium-liquid assets that can be converted into money without significant losses within six months. These include finished goods and ordinary receivables.

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  Weakly liquid current assets that can be converted into money without loss of value after a long period of time (more than six months). These are work in progress, semi-finished products and raw materials.
• Illiquid current assets are things that cannot be converted into money on their own. They are subject to sale only as part of the entire complex of property. These are deferred costs, as well as uncollectible receivables and more.

According to the nature of the origin of financial sources, gross and net assets are distinguished. Gross characterize the entire volume of assets formed at the expense of borrowed and equity capital. Net assets are formed at the expense of borrowed long-term and equity capital. They represent the difference between the sum of current assets and short-term liabilities.