Current Assets Definition And Examples
Here we study about Current Assets
Definition And Then its Examples. Previously, we study about Current Liabilities and its Examples. Current Assets And Current
Liabilities are recorded in the Balance Sheet.
Current Assets having life equal
to one year or less. They are utilized during the Operating Cycle of the
Business or within the Current Accounting Period. Examples are Cash, Accounts
Receivable, Inventory, Accrued Revenue, etc.
Types Of Current Assets / Examples of Current Assets
Cash or Bank is our Current Asset. When the Company has
cash in hand it is called Cash in Hand or simply Cash and when it is deposited
into company’s account at Bank, then it is called Cash at Bank or simply Bank.
Cash is used within the operating cycle of the business because an entrepreneur
has to use Cash to meet daily expenses of the business to run the business
smoothly and also it is used to improve the Working Capital of the business so
that business must sustain in the Marketplace.
For Example, An Entrepreneur pays many expenses with cash
to meet the daily expenses like it paid salaries to its employees, paid rent,
paid electricity bills and telephone bills, and so on.
Accounts Receivable are our those
customers from which the entrepreneur will receive payments for the goods or
services sold. As the business sold the goods or services on credit so it
becomes the current asset of the company because the business gets payment from
the customers for selling goods or services.
For Example, if an Entrepreneur
sells goods to one of his / her clients for Rs.70000 on credit. Then we record
the following Journal Entry in the book of Entrepreneur:
Mr. A (Client) Rs.70000
ABC (Entrepreneur) Rs.70000
Here Mr. A is Account Receivable and it is debited so it is the Current Asset of the entrepreneur.
When, the company sells goods or
services to its customers, then the credibility of the customers does matter
and plays an important role in Business Transactions. Otherwise, entrepreneur refrains
from giving credit to such kind of customers.
If the company does not receive
the payments for the goods or services sold, then it creates Bad Debts. So, the company always makes an estimation
of the amounts due from its customers.
Goods remain unsold at the end of
the operating cycle of current accounting period are called Inventories or
Closing Stock. The Closing Inventory of an Accounting Period is considered as
Opening Inventory for the next beginning of the Accounting Period.
For Example, If ABC Entrepreneur
has unsold goods worth Rs.80000 at the end of the operating cycle, then these
unsold goods are called Closing Inventory in Accounting Terms.
Prepaid Expenses are those Current
Assets for which company pays the amount but the benefits in respect of these
expenses are still not get by the company. For Example, company buys prepaid
cards for using them in current accounting period. The benefits associated with
these cards are still not getting by the company. When the company uses these
cards, then it is expired after its full utilization otherwise card
automatically expire after specified period of time mentioned on it.
Accrued Revenue is Current Asset for the
Entrepreneur because it is the amount of money which is received by the company
against the products or services delivered by the company to its customers. For
Example, A renter who does not pay the rent at the end of the month is treated
as Accrued Revenue from the point view of Owner of the Property. Similarly, if a
customer gets the services of Barber (A Man who cuts hair), then he / she pays
the fees. Before paying the fees, the amount of fees is treated as Accrued
Revenue for the Hair Cutter of the Company the Barber has delivered the
services to its customers.
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