Current assets
Learn what current assets are, with examples, the formula, and how they measure your short-term liquidity.
Published Thursday 23 July 2026
Table of contents
Key takeaways
- Current assets are resources you expect to use or turn into cash within a year, such as cash, inventory and accounts receivable.
- You calculate total current assets by adding up cash and cash equivalents, marketable securities, accounts receivable, inventory and prepaid expenses.
- Comparing current assets to current liabilities, through the current ratio, shows how easily you can pay your short-term bills.
- Unlike fixed assets, current assets aren’t subject to depreciation.
Current assets (definition)
Current assets are the resources your business owns and expects to use or sell within a year, or within its normal operating cycle. They sit on your balance sheet and show the short-term value you can turn into cash.
That cash matters because it’s what you draw on to pay day-to-day operating expenses, bills and loan repayments, otherwise known as your current liabilities.
Key characteristics of current assets
Not every asset counts as current. To qualify, a resource usually shares a few defining traits:
- turn into cash within a year, or one operating cycle
- help you cover everyday costs through their sale or use
- avoid depreciation, unlike fixed assets
Examples of current assets
Current assets cover anything you can realistically convert to cash in the short term. Common examples include:
- cash and cash equivalents, such as money in the till or bank
- marketable securities and short-term investments you can sell quickly
- accounts receivable, the payments customers still owe you
- inventory you plan to sell to customers
- prepaid expenses, like annual insurance or software subscriptions
How to calculate current assets
To find your total current assets, add up the value of every current asset on your balance sheet. In prose, the formula is: total current assets = cash and cash equivalents + marketable securities + accounts receivable + inventory + prepaid expenses.
The main components you’ll add together are:
- cash and cash equivalents
- marketable securities and short-term investments
- accounts receivable
- inventory
- prepaid expenses
Current assets vs fixed assets
The main difference comes down to time. Current assets turn into cash within a year, while fixed assets, sometimes called non-current assets, are long-term resources you keep and use for longer than a year.
Fixed assets, like equipment, vehicles or property, lose value through depreciation. Current assets don’t, so they give you a clearer picture of the cash you can access soon.
Current assets and liquidity
Your current assets are a key measure of liquidity, or how easily you can pay your short-term bills. Lenders and suppliers often look at them to gauge your financial health.
The current ratio divides your current assets by your current liabilities. A ratio above 1 means you have enough short-term resources to cover what you owe within the year.
The quick ratio is stricter: it leaves out inventory to show how well you’d cope using only your most liquid assets. Working capital, your current assets minus your current liabilities, tells you the cash cushion you have to run and grow your business.
Keep track of your current assets with Xero
Keeping an eye on your current assets helps you stay on top of cash flow and make confident decisions. Xero brings your balance sheet, bank feeds and reporting together, so you can see what you own and owe in real time. Try Xero today and get one month free.
FAQs on current assets
Here are answers to some frequently asked questions about current assets.
What are the main types of current assets?
The main types are cash and cash equivalents, marketable securities, accounts receivable, inventory and prepaid expenses. Together they cover the resources you can turn into cash within a year.
How do you calculate total current assets?
Add up the value of every current asset on your balance sheet, from cash through to prepaid expenses. The total shows the short-term resources you have to cover your current liabilities.
What is the difference between current assets and fixed assets?
Current assets convert to cash within a year, while fixed assets are long-term resources you use for longer than a year. Fixed assets also depreciate over time, whereas current assets don’t.
Why are current assets important for a small business?
They show whether you can cover short-term bills, payroll and loan repayments without straining your cash flow. Strong current assets also make it easier to secure credit and get through slow periods.
Are current assets the same as liquid assets?
They overlap but aren’t identical: liquid assets are the current assets you can convert to cash almost instantly, like cash itself and marketable securities. Inventory and prepaid expenses are current assets, but they’re less liquid.
Related terms
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.