Current assets and current liabilities

What are current assets and current liabilities? Let’s define current assets and current liabilities, and then take a look at the current assets and current liabilities on the balance sheets of two of the biggest companies in the world. Current assets and current liabilities are both groupings of accounts on the balance sheet. A balance sheet is a picture at a point in time (usually the end of the year, or the end of the quarter) of what a company owns (on the left) and what a company owes (on the right). Besides assets (what a company owns) and liabilities (what a company owes to creditors), you will also find a group of accounts on the right-hand side called equity, which represents the book value of the shareholder capital. Asset accounts are grouped in either current assets or non-current assets, and liabilities accounts into current liabilities or non-current liabilities. The difference between current and non-current in both cases is within one year (current) versus longer than one year (non-current). Current assets are cash and other assets that are expected to be converted to cash within a year. Some examples of accounts in Current Assets: Cash, Accounts Receivable (amounts to be received from customers), Inventory (products available for sale), Prepaid Expenses (amounts paid but not expensed yet). Current Liabilities are amounts due to be paid to creditors within twelve months. Some examples of accounts in Current Liabilities: Accounts Payable (amounts to be paid to suppliers), Accrued Liabilities (an expense incurred but not yet paid), Short Term Debt. So the difference between current and non-current assets is whether this asset will be converted to cash within one year. The difference between current and non-current liabilities is whether the amounts are due within one year, or further out.

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0:00 Current assets and current liabilities on the balance sheet
0:53 Current vs non-current
1:03 Current assets definition and examples
1:26 Current liabilities definition and examples
2:00 Current assets vs current liabilities example: Amazon
4:01 Negative working capital
4:36 Current assets vs current liabilities example: Apple

Philip de Vroe (The Finance Storyteller) aims to make strategy, #finance and leadership enjoyable and easier to understand. Learn the business and #accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better investing decisions. Philip delivers #financetraining in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!