Current and Noncurrent Assets Paper

Current and Noncurrent Assets Paper

Every company must know what it takes financially for their day to day and yearly operations. Many companies have their accounting department to prepare them a balance sheet that contains all their accounts and financial information. Within this balance sheet are listed the company's current assets and noncurrent assets and are all listed in order of liquidity. Throughout this paper the following will be discussed; what current assets are, what noncurrent assets are, the difference between current and noncurrent assets, what the order of liquidity is, and how the order of liquidity applies to a balance sheet.

Current Assets

Current assets are "a balance sheet account that represents the value of all assets that are reasonably expected to be converted into cash within one year in the normal course of business" (Investopedia, 2011). If a company knows their current assets they are able to determine how much money they can spend on daily operations and expenses. A company's current assets consist of inventory, marketable securities, cash, prepaid expenses, accounts receivable, and other items that can be changed into cash. All these assets are what a company can change into paper money if needed to handle any unresolved debt that must be taken care of. These assets are most likely to last or be in use for at least one year.

Noncurrent Assets

Noncurrent assets are assets that are not current. "An asset which is not easily convertible to cash or not expected to become cash within the next year, examples include fixed assets, leasehold improvements, and intangible assets" (Non Current Assets, 2011). These particular assets are normally not sold or exchanged and are retained for at least a year or more. These assets are often more lucrative than the current assets. However, noncurrent assets are harder to convert into cash. In addition to noncurrent assets being difficult to convert into cash the value of the assets may not remain the same due to the constant inflation and deflation of the assets value. The valued amount of some of the noncurrent asset such as land and buildings can sometimes be dependent upon the state of the economy and or area that it is in.

Differences between Current and Noncurrent Assets

Differences between current and noncurrent assets are that current assets are inventory, marketable securities, cash, prepaid expenses, accounts receivable, and other items that can be changed into cash. Noncurrent assets are "leasehold improvements, fixed assets, and intangible assets. Current assets are most likely to last or be in use for at least a year or more. Noncurrent assets are normally not sold or exchanged and are retained for more than entire year. Current assets are easier to convert to cash versus noncurrent assets are more difficult. Noncurrent assets, although more difficult to convert to cash can be more lucrative than current assets. In addition to noncurrent assets being difficult to convert into cash the value of the assets may not remain the same due to the constant inflation and deflation of