Current and NonCurrent Assets
It important to distinguish between current and noncurrent assets and I will explain in this article.
Current assets, also called current or liquid assets, are the assets of a company that can be liquid (converted into money ) in less than twelve months. Such as, for example, bank money, stocks, and financial investments.
In addition, we can understand the current assets as all those resources that are necessary to carry out the day-to-day activities of the company. It is known as current because it is a type of asset that is in continuous movement, can be sold, used, become liquid money or delivered as payment without too much difficulty.
In accounting, when we analyze the balance sheet of a company, we can differentiate between assets, liabilities and equity . Within the asset, we find the current asset, which is the asset that becomes effective in the short term and the non-current asset , which is the asset that becomes effective over a period of more than one year.
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Example /Classification of Current Assets
- Non-current assets held for sale
- Comercial debts and other counts under charge
- Short-term financial investments
- Treasury (cash and banks)
- Short-term accruals
How is current assets financed?
In order to analyze the best way to finance the asset in the short term, it is important to know the concept of the working capital , which is the part of the current asset that is financed with the non-current liability , or what is the same, the assets Liquids that are financed with long-term resources. We can say that the working capital is the surplus that results from the current assets of the company and that we can calculate it in two ways:
- Working capital = Current assets – Current liabilities
- Working capital = ( Equity + Non-current liabilities ) – Non-current assets
Now, with this last one, we know that for the day-to-day running of the company, the current assets must be greater than the current liabilities , that is, the resources available to us (current assets) are greater than short-term debts Current liabilities) in order to face them. However, before this last one can give several situations:
- Current liabilities greater than current assets: It would be a dangerous situation since we would have more short-term debt than resources to be able to pay them.
- Current assets as current liabilities: this would be a point of equilibrium in which the liquidity of the company is assured, but at the time that any of our debtors not pay us on time our liquid assets would be lower than short – term debt And therefore we would be in the situation where current liabilities would be greater than current assets.
The balance sheet of a company is represented as follows. Assets are equal to liabilities plus equity. The working capital is current assets (or current) less current liabilities (which are short-term liabilities). The noncurrent assets he was previously known as fixed assets.
The active non – current or fixed asset of a company is made up of all the assets of society that do not become effective in a period exceeding one year, ie more than one year have a life. It is a part of the asset , within the balance sheet of a company.
Non – current assets are durable and illiquid, for it takes time to turn them into money cash. They are an important element in the economic structure of the company, but as long – term investments, not serve to obtain liquidity (money) for the company in the short term. They are resources that serve the business in the long term, such as a local, a van, computers, a patent, etc.
The idea is to keep them in the company for a long period of time. For example the machinery used in the manufacture of furniture or an industrial warehouse suffer little wear and have a very long service life. Keep in mind that although they are durable they are not eternal.
It is important to note that the value of an asset in the books is the purchase price , including the costs of the purchase and discounting the annual amortization of that asset. Depending on the type of assets that a company has in its non-current assets, we can guess the activity.
Example / Classification of non-current assets
Among non-current assets, we have:
- Long-term financial investments , such as the acquisition of long-term fixed income securities , shares and capital contributions .
- Elements of property , plant and equipment include real estate, movable and useful property, equipment , machinery , land, intangible , etc. The property forms the non-current asset except if it is a real estate company, which is dedicated to buying and selling real estate. In that case, they would be current assets .
- Intangible assets are those that can not be quantified physically but which produce or can produce benefits for the company, such as the rights to use industrial or intellectual property, or a patent.