What are current assets?

Current assets are resources a business expects to convert to cash or consume within one year or one operating cycle, whichever is longer. They include cash, accounts receivable, prepaid expenses, and inventory. Current assets appear on the balance sheet and represent the liquidity available to fund daily operations and meet short-term obligations.

The liquidity hierarchy

Current assets are listed in order of liquidity. Cash comes first because it requires no conversion. Cash equivalents like money market funds follow. Accounts receivable next, then inventory for businesses that carry it, then prepaid expenses. This ordering helps readers quickly assess how easily the business can meet immediate obligations.

Current assets and working capital

Subtract current liabilities from current assets to calculate working capital. Positive working capital means you can cover short-term debts with short-term resources. Negative working capital signals potential cash flow problems. Track the ratio over time. Deteriorating working capital often precedes cash crises by several months.