Glossary
Current asset
An asset the business expects to use up or turn into cash within a year.
What it means
An asset held for sale or consumption in the normal operating cycle, or expected to be realised within twelve months of the reporting date.
Example
Inventory, trade receivables and cash are current assets.
Why it matters
Current assets are compared with current liabilities to judge whether a business can pay its short-term debts.
In practice
On the statement of financial position, current assets are listed together, usually in increasing order of liquidity: inventory first, then trade receivables, then bank and cash last. They are totalled and compared with current liabilities to judge whether the business can meet its short-term debts.
Imagine a shop holding inventory of RM8,000, trade receivables of RM3,000 and cash of RM1,500. Its current assets total RM12,500.
Students often confuse a current asset with a non-current asset. A delivery van kept for several years is non-current. The fuel waiting to be used and the money owed by credit customers are current. The test is intention and time: is the item held for long-term use, or is it expected to turn into cash soon? The same item can switch category if the owner's purpose changes.
If you are unsure how to classify items in an exam question, one of our teachers can practise this with you using real past-paper lists. Book a trial class.
Related terms
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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