Define current assets, Accounting Basics

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Q. Define Current assets?

Current assets are cash and other assets that a business is able to convert to cash or uses up in a relatively short period one year or one operating cycle whichever is longer. An operating cycle is the time it takes to begin with cash buy necessary items to produce revenues (such as labour, materials, supplies and/or finished goods) sell services or goods and receive cash by collecting the resulting receivables. Companies in merchandising industries and service industries generally have operating cycles shorter than one year. Companies in some manufacturing industries such like distilling and lumber have operating cycles longer than one year. But since most operating cycles are shorter than one year the one-year period is typically used in identifying current assets and current liabilities. Common current assets in a service business include marketable securities, cash, accounts receivable, notes receivable, interest receivable and prepaid expenses. Note that on a balance sheet current assets are in order of how effortlessly they are convertible to cash from most liquid to least liquid.


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