Current vs Noncurrent Assets
Assets that are held by a company consist of two categories, which are current assets and noncurrent assets. Current assets are those assets that the company will hold with the intention of converting to cash in the short term. Noncurrent assets, on the other hand, are held for longer periods of time (generally more than a year). Both current and noncurrent assets are essential to the smooth running of any business. The article that follows offers a clear explanation on each type of asset and shows the similarities and differences between current and noncurrent assets.
Current Assets
Current assets appear on a firm’s balance sheet and are the total of all the assets that can be easily converted into cash. Examples of current assets include stock, accounts receivable, bank balance, and cash in hand, etc. Since all these assets can be easily and conveniently converted to cash, they are classified as current assets in a balance sheet. Current assets also include a few items that are cash equivalents. This means that such assets can be converted to cash very quickly such as bank balances, cash in hand, funds in money market accounts, etc. Further to this, investments that are of a shorter term such as those that mature between 3 months and a year can also be considered as current assets. It is very important for a company to maintain current assets that can quickly be converted into cash as they will become very useful in times of financial need.
Noncurrent Assets
Noncurrent assets are assets that are not to be sold within a year’s time. Noncurrent assets are also shown in the company’s balance sheet. Noncurrent assets are not as liquid as current assets and are not held with the intention of selling in the short term. One such category of noncurrent assets is long term investments that include equity and debt, which are to be held by the firm over a long period of time. Noncurrent assets also include ownership interest that the company holds in other firms. Fixed assets such as land, buildings, plant and machinery are also considered to be noncurrent, and they are held and used for extended periods of time. Depreciation will be calculated on the value of such fixed assets. Another important category of noncurrent assets is intangibles such as a company’s goodwill, brand name, intellectual property, patents, etc.
What is the difference between Current and Noncurrent Assets?
Current assets and noncurrent assets are important components in a company’s balance sheet that shows the value of the total of the assets held in a firm. Current assets are those that can be quickly and easily converted into cash. Noncurrent assets, on the other hand, are held for longer periods of time, and usually include items that are not held with the intention to sell within a period of 12 months. Noncurrent assets also cannot be converted into cash quickly and are not as liquid as current assets.
Summary:
Current vs Noncurrent Assets
• Assets that are held by a company consist of two categories, which are current assets and noncurrent assets.
• Current assets are the total of all the assets that can be easily converted into cash.
• Investments that are of a shorter term such as those that mature between 3 months and a year can also be considered as current assets.
• Noncurrent assets are not as liquid as current assets and are not held with the intention of selling in the short term.
• A company’s goodwill, brand name, intellectual property, patents, etc. can also be considered as noncurrent assets.