What are current assets: How to calculate & why they matter

Maintaining a company’s financial health starts with having a strong mix of current assets. These are resources a business expects to liquidate (i.e., turn into cash) within a year, such as cash or cash equivalents, inventories, and accounts receivable. They play an important role in covering expenses like bills, loan payments, and operating costs, while also serving as a key measure of a company’s liquidity and financial strength.

In this article, we’ll break down what current assets are, how they differ from non-current assets, and why they matter to your business. We’ll also discuss which assets fall into this category, where to find them on a balance sheet, and how to calculate them.

What are current assets?

Current assets include all the resources a company expects to use, sell, or convert into cash within one financial period — usually a year. Because they can be quickly liquidated, these assets are crucial for maintaining daily operations and covering short-term financial obligations.

Current assets typically share three defining features:

• They are tangible and convertible into cash within a year
• They help the business cover its day-to-day expenses when sold or used
• They’re not subject to depreciation

Here are some examples of current assets:

• Cash and cash equivalents
• Accounts receivable
• Inventories (includes supplies and finished products)
• Marketable securities
• Prepaid expenses
• Short-term investments

Current assets are usually tangible because they can be turned into usable funds. Although some current assets may seem intangible, such as marketable securities and prepaid expenses, they’re considered tangible because they have clear, contractual value and can be readily converted to cash.

A company’s ability to meet essential expenses, such as salaries, rent, and utility bills, without needing external funding is a strong indicator of financial health. Current assets make this possible. 

Where do current assets appear on a balance sheet?

Current assets appear at the top of the assets section on a balance sheet. They’re listed in order of liquidity, from most to least liquid. Usually, you’ll find cash and cash equivalents first, followed by marketable securities, accounts receivable, inventories, short-term investments, and other current assets. 

Keep in mind that the order of liquidity varies per company, as each business values its assets differently. 

What’s the difference between current vs non-current assets?

The main difference between current and non-current assets is how quickly they can be liquidated and generate revenue.

Current assets generate income by being sold or used within a single financial period. In contrast, non-current assets are long-term resources that support revenue generation over time. They also can’t be sold easily, if at all. 

Non-current assets include tangible assets like property and equipment, and intangible assets like patents and goodwill. Read our non-current assets guide to learn more.

What are the different types of current assets?

Here are the most common types of current assets you’ll find listed on a balance sheet:

• Cash and cash equivalents: These include readily available funds (e.g., cash in hand, cash at bank, petty cash) and highly liquid investments such as money market instruments, treasury bills, and short-term government bonds.

• Marketable securities: Investments that can be quickly liquidated without significantly affecting their value, such as stocks and mutual funds.

• Accounts receivable (or debtors): This refers to money owed to the company for goods or services already delivered. It’s only considered a current asset if payment is expected within a year. Receivables with longer payment terms, such as when a business offers longer credit terms to its customers, are excluded from the current assets account.

• • Unpaid/uncollected accounts are excluded from current assets and are recorded as bad debt expense instead.

• Inventories (or stocks): This includes both raw materials and finished goods. Although these are considered current assets, their liquidity varies depending on the product and industry.

• Prepaid expenses: Advance payments for future goods or services, such as insurance and contractor fees. Although these can’t be converted into cash, these payments have already been made, freeing up capital for other uses.

• Other short-term investments: Investments not classified as marketable securities are recorded here. They put surplus cash to work while remaining accessible if needed.

You may find other types not included on this list, depending on the size and nature of the company.

How do you calculate current assets?

Use the following formula to calculate current assets:

Current assets = Cash and cash equivalents + Inventories + Accounts Receivable + Marketable Securities + Prepaid Expenses + Other Liquid Assets

Note: Any assets that don’t belong in the listed subcategories can be added under “Other Liquid Assets”.

You’ll find these figures on the balance sheet with the total already included. But if you’re trying to calculate your company’s current assets before issuing a balance sheet, here’s how you determine the figure for each subcategory:

• Cash and cash equivalents: Add cash in hand, petty cash, cash at bank, and cash equivalents together
• Inventories: Use receipts and other valuation methods to add together the values of raw materials, other components, and finished goods
• Accounts receivable: Get the total of any payments, subscription fees, and instalments your customers owe in the short term (usually payable within a year). Don’t include anything that isn’t due within the same financial year.

• Marketable securities: Identify any investments with an expected maturity date of a year or less.

• Prepaid expenses: Find the total of all unused goods and services the company has already paid for and are expected to be used or delivered within a year.

• Other liquid assets: Add the value of all other current assets the company expects to liquidate within a year

Keep in mind that while the balance sheet lists current assets in order of liquidity, the exact order varies between companies and industries. How liquid an asset is for a company often depends on the nature of the business.

What are some real-world example of current assets?

Example 1: British tea brand Twinings has a reported total current assets of £403 million for the financial year ending on 31st August 2024. The breakdown is as follows:

• Stocks (inventories): £16.28 million
• Debtors (accounts receivable): £385.71 million
• Cash at bank and in hand: £1.09 million

Example 2: Language-learning app Duolingo reported its total current assets for the quarterly period ending on 31st March 2025 as $1.2 million. Here’s the breakdown:

• Cash and cash equivalents: $889,000
• Short-term investments: $115,000
• Accounts receivable: $114,000
• Deferred cost of revenues (payment for services that the company hasn’t delivered yet): $89,000
• Prepaid expenses and other current assets: $16,000

Why are current assets important?

Current assets are vital to any company’s operations for several reasons:

• A strong set of current assets ensures a company can meet its short-term obligations and future growth plans without relying on external funding or selling off long-term assets.
• Current assets can be a buffer against any financial challenges or cash flow disruptions. The company can liquidate assets as necessary to keep operations going.
• Regularly monitoring current assets helps businesses identify if inventory is stuck in production or if excessive unpaid accounts are holding back revenue.
• Lenders and suppliers often assess a company through the strength of its current assets before extending credit or entering into any contractual agreements.

Quickfire summary: What are current assets?

Current assets are resources a business expects to use, sell, or convert into cash within a financial year. They’re essential for covering short-term obligations such as salaries, bills, and loan repayments.

To be classified as a current asset, it must be:

• Tangible and not subject to depreciation
• Be convertible into cash within 12 months
• Provide value through its sale or use in daily operations

Common examples of current assets include:

• Cash and cash equivalents
• Marketable securities
• Inventory and supplies
• Accounts receivable (debtors)
• Prepaid expenses
• Other short-term investments

You'll find current assets on the company’s balance sheet, at the top of the assets section. They’re listed from most to least liquid, although the order varies per company.

A strong set of current assets reflects solid financial health; it shows that the company can meet its short-term obligations without relying on external funding. This stability also boosts credibility with lenders and suppliers, as it signals the business can meet its contractual obligations with no problems.