Current assets
Current assets are resources you can turn into cash within a year. See the types, formula and key ratios.
Published Thursday 23 July 2026
Table of contents
Key takeaways
- Current assets are resources your business owns and expects to use or turn into cash within 12 months, or a single operating cycle when that's longer.
- Common current assets include cash, cash equivalents, marketable securities, accounts receivable, inventory and prepaid expenses.
- You add up your current assets to check liquidity: how easily you can cover short-term bills and keep cash flowing.
- Current assets feed into working capital and the current ratio, and unlike fixed assets they aren't depreciated.
What are current assets?
Current assets are resources your business owns and expects to use or sell within 12 months, or a single operating cycle when that's longer. In short, they're the assets closest to becoming cash.
You'll find them grouped near the top of your balance sheet, because they're the funds you draw on to run the business day to day.
Types and examples of current assets
Current assets cover more than the cash in your bank account. Common examples include:
- cash in the till or bank
- cash equivalents such as short-term deposits
- marketable securities you can sell quickly
- accounts receivable, or payments due from customers
- inventory you plan to sell
- prepaid expenses like annual insurance or software subscriptions
- other short-term or liquid assets you can convert within the year
On the balance sheet, these are listed in order of liquidity, starting with cash and ending with the assets that take longest to convert.
Key characteristics of current assets
A few traits set current assets apart from the rest of what your business owns. Here's what they share:
- They're liquid, so you can turn them into cash within a year or a single operating cycle.
- They're short-term by nature, rather than assets you hold for the long haul.
- They aren't depreciated, which is the key contrast with fixed assets that lose value over time.
- They aren't always tangible: prepaid expenses and marketable securities count as current assets even though you can't physically hold them.
Current assets formula
To find your total current assets, add up every short-term resource on your balance sheet. The formula is:
Current assets = cash + cash equivalents + marketable securities + accounts receivable + inventory + prepaid expenses + other liquid assets
Say you run a small café in Wellington. You've got $8,000 in the bank, $3,000 owed by catering clients, $5,000 of stock and $1,000 in prepaid insurance. Your current assets add up to $17,000.
Current assets vs non-current assets
The main difference comes down to how quickly you expect to use each asset. Current assets convert to cash within a year, while non-current (or fixed) assets stick around longer. Here's how they compare:
- Current assets have a short liquidity horizon; non-current assets support the business for more than a year.
- Current assets aren't depreciated; fixed assets like vehicles and equipment are depreciated over their useful life.
- Current assets are usually reported at realisable value; non-current assets are recorded at cost, less depreciation.
Current assets and liquidity: working capital and ratios
Current assets tell you how well your business can meet its short-term obligations. You measure that through working capital and a couple of liquidity ratios.
Working capital is your current assets minus your current liabilities. A positive figure means you can cover what's due in the next year with room to spare, and healthy working capital gives you breathing space to reinvest.
The current ratio is your current assets divided by your current liabilities. A ratio above 1 suggests you can pay short-term debts as they fall due.
The quick ratio works the same way but excludes inventory, since stock can take time to sell. It's a stricter test of whether you can meet bills using your most liquid assets.
Why current assets matter
Current assets keep your business running. They're the funds you draw on to pay staff, suppliers and everyday bills without waiting on long-term income.
Strong current assets also steady your cash flow and signal financial health to lenders and investors, which makes it easier to secure funding when you want to grow.
Track your current assets with Xero
When your cash, invoices and stock live in one place, you can see your liquidity at a glance and make confident decisions about what's next. Xero brings your finances together so tracking current assets takes less manual admin and less guesswork.
Ready to see where your business stands? Get one month free and start keeping your numbers organised.
FAQs on current assets
Here are answers to some frequently asked questions about current assets.
What counts as a current asset?
Anything your business can use or convert to cash within a year, such as cash, receivables, inventory and prepaid expenses. Short-term investments and cash equivalents also qualify.
What is the current assets formula?
You total your cash, cash equivalents, marketable securities, receivables, inventory, prepaid expenses and any other liquid assets. The result is the current assets figure shown on your balance sheet.
What is the difference between current and non-current (fixed) assets?
Current assets are expected to convert to cash within a year, while non-current assets support the business over a longer period. Fixed assets are also depreciated, whereas current assets are not.
Are current assets the same as liquid assets?
They overlap but aren't identical, since every liquid asset is current, yet some current assets like inventory take longer to sell. Liquid assets are the ones you can convert to cash almost immediately.
How do current assets relate to working capital?
Working capital is what's left after you subtract current liabilities from current assets. It shows how much short-term funding you have to keep the business moving.
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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.