December 19, 2012
Instructor: Carl Schulz
The purpose of this paper is to discuss current and noncurrent assets, define the differences and similarities between the two, and address what the order of liquidity is and how it applies to the balance sheet.
In business an asset is defined as a property or equipment owned by a company that has a positive economic value. There are two main types of assets: current assets and non-current assets. Current Asset
Current assets are assets that a company expects to convert to cash or use within one year (Kimmel, Wegandt, & Kieso, p. 49, 2007). Common types of current assets are cash, short-term investments, receivables, inventories, and prepaid expenses. 1. Cash is considered current assets because it typically is used within a year of it being stated on a balance sheet. 2. Short –term investments are investments that a company has made that will expire within a year. Stocks and bonds are considered to be short-term investments. 3. Receivables are money owed to the company by customers and are considered current assets because the company will collect and convert to cash within a year. 4. Inventories are materials or goods used by a business that are considered current assets because the company expects to use them up within one year. 5. Prepaid Expenses are assets that are recorded in the balance sheet as future payments for goods and services. An example of prepaid expenses is Insurance. The cost of insurance is recorded in the balance sheet as future payments since the policy holder pays money upfront to cover the risk. Non-current Assets
Non-current assets are assets that are not easily convertible to cash or not expected to become cash within a year. Some examples of non-current assets are fixed assets, intangible assets and long-term notes receivable. 1. Fixed assets are tangible material, property, or...