Current and Noncurrent Assets

In: Business and Management

Submitted By lauretta987
Words 930
Pages 4
Accounting is thought of by many as simply basic mathematics consisting of adding and subtracting totals to track a company’s spending and expenses; however, accounting involves so much more. Accounting comprises of a multitude of financial concepts and transactions. According to Kimmel, Weygandt, and Kieso, “accounting is the information system that identifies, records, and communicates the economic events of an organization to interested users” (Kimmel, Weygandt, & Kieso, 2011, p. 5). This system covers a broad array of information but in this paper the current and noncurrent assets will be defined, contrasted, and compared. In addition, the order of liquidity and how this practice applies to the balance sheet will be reviewed. Accounting is the means of communicating the numbers and to be successful in business the numbers have to be known “cold”. Therefore, it is imperative not only to communicate the numbers effectively but also to understand them to thrive in a world submerged with figures.
Current Assets
To understand assets, they first must be defined. Assets are resources such as land, computers, buildings, cash, and supplies owned by an organization. Cash is the most important asset that any business can possess. Consequently, cash is considered a current asset. Current assets are those resources that a business anticipates to replace with cash or deplete within 12 months or its operating cycle dependent upon whichever is farther away. The common practice for most businesses is the cutoff to be classified as current assets is one year from the balance sheet date. Current assets include short-term investments, cash, receivables, prepaid expenses, and inventories. For example, accounts receivable are current assets because a firm expects to collect payments and convert these payments to cash within one year. Businesses list current assets in the order in…...

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