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Current Assets

Current assets are stock, debtors, cash at bank and cash in hand. They change rapidly as each day’s transactions involve all of them. The levels of stock and debtors rise and fall as purchases and sales occur. Cash and bank balances are affected too as each day there are payments made to creditors and cash receipts from debtors.

Debtors or accounts receivable: A person or organization that owes the firm money is called a debtor. The debtors owe money for goods delivered to them on credit. They are not the company’s possessions but the company does own the debts they owe. The cash asset of the company increases when payments are received from the debtors but the asset of debtors decreases.

Cash at bank: Cash at bank refers to those cash accounts maintained at the bank. These accounts include checking account, current account, savings account, deposit account, etc.

Cash in hand: Cash in hand includes petty cash, cheques, and money order.

Prepayments: Another current asset is prepayments. These are payments made in advance for expenses. They are regarded as current asset because the cash paid has not been used up yet. Once it is used up, they cease to be prepayments and are no longer a current asset. Examples of prepayments are prepaid insurance, prepaid rent, etc.

Notes receivable: Note receivable is written promise to receive money at a future date. It includes the principal sum receivable and usually interest. The note can be for one year or less. Thus, it can be either a non-current asset or a current asset.

Current assets such as stock and debtors are expected to realize in cash within a six-month period. Hence, they are current assets.

Current assets are listed on the balance sheet starting with the asset hardest to convert into cash at the top as follow:

Stock
Debtors
Cash at bank
Cash in hand

Last Updated (Sunday, 12 September 2010 18:35)