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Current Asset( Aset Semasa)

current assets

Definition

A balance sheet item which equals the sum of cash and cash equivalents, accounts receivable, inventory, marketable securities, prepaid expenses, and other assets that could be converted to cash in less than one year. A company’s creditors will often be interested in how much that company has in current assets, since these assets can be easily liquidated in case the company goes bankrupt. In addition, current assets are important to most companies as a source of funds for day-to-day operations.

Current assets are cash and other assets expected to be converted to cash, sold, or consumed either in a year or in the operating cycle, without disturbing the normal operations of a business. These assets are continually turned over in the course of a business during normal business activity. There are 5 major items included into current assets:

  1. Cash and cash equivalents — it is the most liquid asset, which includes currency, deposit accounts, and negotiable instruments (e.g., money orders, cheque, bank drafts).
  2. Short-term investments — include securities bought and held for sale in the near future to generate income on short-term price differences (trading securities).
  3. Receivables — usually reported as net of allowance for uncollectable accounts.
  4. Inventory — trading these assets is a normal business of a company. The inventory value reported on the balance sheet is usually the historical cost or fair market value, whichever is lower. This is known as the “lower of cost or market” rule.
  5. Prepaid expenses — these are expenses paid in cash and recorded as assets before they are used or consumed (a common example is insurance). See also adjusting entries.
Current Assets

What Does Current Assets Mean?

(1) A balance sheet account that represents the value of all assets that can reasonably be expected to be converted into cash within one year in the normal course of business. Current assets include cash, accounts receivable, inventory, marketable securities, prepaid expenses, and other liquid assets that can be converted readily to cash. (2) In personal finance, current assets are all assets that a person can convert readily to cash to pay outstanding debts and cover liabilities without having to sell fixed assets. In the United Kingdom, current assets are also known as current accounts.

Investopedia explains Current Assets

(1) Current assets are important to businesses because they are the assets that are used to fund day-to-day operations and pay ongoing expenses. Depending on the nature of the business, current assets can range from barrels of crude oil, to baked goods, to foreign currency. (2) In personal finance, current assets include cash on hand, bank accounts, and marketable securities that are not tied up in long-term investments. In other words, current assets have value and can be converted to cash rather quickly (highly liquid).

Related Terms:
Acid-Test Ratio
Balance Sheet
Cash and Cash EquivalentsCCE
Current Liabilities
Working Capital

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