What are current assets?
Current assets (definition)
Current assets are the resources that a business owns and expects to use or sell within a year.
Current assets are important to a business because by converting them to cash they allow it to pay its day-to-day operating expenses, bills and loan payments - its current liabilities.
Key characteristics of current assets
- Current assets are often tangible, physical things that are expected to be used or converted to cash within a year
- They provide financial benefit to the business by allowing it to cover day-to-day expenses through their sale or use
- They are not subject to depreciation
Examples of current assets
Current assets commonly include:
- cash in the till or bank
- inventory that will be sold to customers
- accounts receivable, which are payments due to come in
- prepaid expenses like annual insurance policies or software subscriptions
Current assets in accounting
Comparing a business’s current assets to its current liabilities helps determine the business’s liquidity.
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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.