What are current assets?
Current assets are what your business expects to turn into cash or use up within 12 months. Here’s how they work.
Published Wednesday 30 September 2026
Table of contents
Key takeaways
- Current assets are resources your business expects to turn into cash or use up within 12 months, such as cash, stock, debtors and prepayments
- Irish company law treats any asset you don’t hold for continuing use in the business as a current asset
- Current assets aren’t depreciated, but stock is written down when its net realisable value falls below cost
- Comparing current assets with current liabilities shows whether you can cover the bills due in the coming year
What are current assets?
Current assets are resources your business expects to turn into cash or use up within the next 12 months. If your normal trading cycle runs longer than a year, that cycle sets the time frame instead.
Irish company law draws the line by how you use an asset. Under the Companies Act 2014, an asset you hold for continuing use in your business is fixed. Anything else is a current asset.
Think of current assets as the money in your wallet plus the money that’s on its way to you. The stock on your shelves and the invoices your customers owe will soon become cash you can spend.
Why current assets matter
Current assets are what you draw on to pay the bills that fall due over the coming year. They show how much room you have to cover supplier invoices, wages, rent and tax without borrowing.
The gap between your current assets and your current liabilities is your working capital. A healthy cushion lets you take on a large order or ride out a quiet month.
Lenders and suppliers look at the same figures when they decide whether to give you credit. Accurate records mean you can answer their questions with confidence.
Key characteristics of current assets
Current assets are defined by what you plan to do with them and how soon. Many aren’t physical at all, since a bank balance or an unpaid invoice is a right to money.
Most current assets share these traits:
- Turn into cash or get used up within 12 months, or within your normal trading cycle
- Support your trading in the short term instead of staying in the business for years
- Include non-physical items such as cash at bank and prepayments
- Skip depreciation, which applies to fixed assets
Instead of depreciating, current assets are checked for any drop in value. International Accounting Standard 2 (IAS 2) measures stock at the lower of cost and net realisable value, which is the likely selling price less selling costs. So last season’s stock that will only sell at a discount gets marked down to that lower figure.
Examples of current assets
Current assets cover cash and anything you expect to convert into cash soon. Most small businesses will recognise several of these on their own books:
- Cash in hand and in your business bank accounts
- Cash equivalents, such as short-term deposits you can access quickly
- Stock, including raw materials, work in progress and finished goods
- Trade debtors, also known as accounts receivable, which are invoices customers still owe you
- Prepayments and accrued income, such as insurance you’ve paid in advance
- Short-term investments you plan to sell within the year
- Other debtors, such as a value-added tax (VAT) refund due from Revenue
Current assets vs non-current assets
Current assets get used up or converted to cash within a year, while non-current assets stay in the business for longer. Non-current assets include equipment, vehicles, premises and long-term investments.
Picture a café in Galway. The coffee beans, milk, pastries and takeaway cups are current assets because they’re used up within days. The espresso machine and the shop fit-out are non-current assets because the café relies on them for years.
The same item can fall into either group depending on who owns it. An espresso machine is stock for the supplier who sells it, yet it’s a fixed asset for the café that brews with it every morning.
How current assets appear on an Irish balance sheet
Irish companies show current assets in a set order on the balance sheet, below fixed assets. The Companies (Accounting) Act 2017 sets out these formats in Schedule 3 to the Companies Act 2014.
Under those formats, current assets appear in four groups:
- Stocks, covering raw materials and consumables, work in progress, finished goods and goods for resale, and payments on account
- Debtors, including trade debtors, other debtors, prepayments and accrued income
- Investments that you don’t hold for continuing use
- Cash at bank and in hand
Creditors falling due within one year come next, followed by a line for net current assets (or liabilities). Sole traders can choose their own layout, and using the same order makes your accounts easy for your accountant and bank to read.
Schedule 3 also sets how each current asset is valued. You record it at purchase price or production cost, or at net realisable value if that’s lower. Once the reason for a write-down stops applying, you reverse it.
How to calculate total current assets
Total current assets is the sum of every current asset on a given date. You can work it out in five steps:
- Pick the date you’re measuring, such as your year end or the last day of the month.
- List every asset you expect to turn into cash or use up within 12 months.
- Take your cash balances from your bank statements for that date.
- Value your debtors at what you expect to collect and your stock at the lower of cost and net realisable value.
- Add the figures together to get your total current assets.
Here’s how that works for a bike shop in Cork on 31 December. Its books show these current assets:
- Cash at bank of €18,500
- Cash in the till of €300
- Stock of bikes and parts worth €42,000
- Trade debtors of €6,200 from a cycling club’s servicing contract
- Prepaid shop insurance of €1,500
- A VAT refund of €1,000 due from Revenue
Adding these gives total current assets of €69,500. The shop’s creditors falling due within one year come to €27,800, so its net current assets are €41,700.
Ratios that use current assets
Ratios turn your current assets into a quick read on liquidity, meaning your ability to pay short-term debts. The two you’ll see most often are the current ratio and the quick ratio.
The current ratio divides current assets by current liabilities. For the Cork bike shop, €69,500 divided by €27,800 gives 2.5. That’s €2.50 of current assets for every €1 due within the year.
The quick ratio is stricter because it leaves out stock and prepayments, which you can’t spend straight away. Removing €43,500 of stock and prepayments leaves the bike shop with €26,000, giving a quick ratio of 0.94.
That tells the owner that paying this year’s bills depends on selling bikes. You can compare both with other liquidity ratios to build a fuller picture.
Track your current assets with Xero
Knowing your current assets helps you plan purchases and keep enough cash to cover what’s due. The clearer your figures, the easier those decisions become.
Xero updates your balance sheet and other financial reports as you work, so your current assets are always up to date. Bank feeds bring in your transactions automatically, and online invoicing lets you track exactly what customers owe you. Try Xero today and get one month free.
FAQs on current assets
These answers cover some of the common questions small business owners ask about current assets.
Is inventory a current asset?
Yes, inventory (called stock in Irish accounts) is a current asset because you hold it to sell. If you take an item out of stock to use in the business on a continuing basis, it becomes a fixed asset.
Is sales revenue a current asset?
No, sales revenue is income that shows in your profit and loss account. The cash or unpaid invoice each sale creates is the current asset.
Are prepaid expenses current assets?
Yes, prepayments sit within debtors as current assets. If you pay €1,200 upfront for a year of insurance, the unused part stays on your balance sheet and drops by €100 each month.
What are net current assets?
Net current assets is the balance sheet name for working capital: current assets minus creditors falling due within one year. A negative figure shows as net current liabilities, a signal to review your cash flow plans.
Can a debtor due after more than one year be a current asset?
Yes, Irish balance sheet formats keep it within debtors under current assets. You show any amount due after more than one year separately, such as instalments on a large order spread over two years.
Related terms
Learn more about current assets
Handy resources
Advisor directory
You can search for experts in our advisor directory
Xero Small Business Guides
Discover resources to help you do better business
Financial reporting
Keep track of your performance with accounting reports
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.