The term “current assets” was put into circulation by the International Committee for Accounting Standards and is enshrined as such a standard in IAS - a document containing a statement of principles and procedures for standard accounting.
As the document reads, an asset is a resource that has been acquired by an enterprise or company in the course of a past activity and from which it is expected to receive future profit. Based on the fact that the definition itself contains an appeal to a time parameter, assets are distinguished by terms of possible useful use. For this reason, assets distinguish:
- long-term (those with a useful life of one year or more);
- current assets (those with a given period of less than one year).
In addition, international standards establish the rules according to which it is necessary to classify assets. So, these rules relate to current assets:
- planned to be used within the operating cycle;
- intended for use exclusively for commercial purposes;
- assets planned for sale within one year;
- those that are presented in cash.
All others should relate to long-term assets.
In accounting, current assets include the following items:
- all, without exception, inventory;
- future expenses to be written off in the future during the reporting period;
- cash;
- short-term investments;
- advance payments for the acquisition of the assets themselves;
- current accounts;
- short-term bills;
- short-term receivables.
As a rule, current assets in accounting are reflected in the order of decreasing their liquidity. This sequence is as follows: cash, investments, accounts receivable (DZ), TMZ and advance payments. In addition, according to IAS, various types of current assets are reflected differently in the balance sheet.
Cash - at face value, short-term investments are reflected either at their market value, or at the lesser of the indicators, which are taken as profitability and market value. DZ is estimated by the amount of expected profit, and TMZ and advance payments - at cost.
All assets of an enterprise or company participate in a turnover that characterizes not only market activity, but also economic efficiency. To assess it, complex indicators are used, one of which is the indicator of the movement of current assets. In this sense, the turnover of current assets is a set of special ratios that show the efficiency of use of each of the types in a particular financial process. For example, accounts receivable are recorded and tested using its turnover ratio. The turnover ratio of TMZ shows the number of sales of the average stock of goods and services for a certain period. The security of the enterprise TMZ is reflected in the corresponding security ratio, which shows either an excess of these resources or their shortage during the period under review. Very important is the coefficient reflecting the share of each of the types of assets in the total current assets of the enterprise. Its role is especially great when planning the development of an enterprise and determining a business strategy.
When conducting a comparative analysis of the financial statements , an indicator is also used as the current assets are correlated with the value of all investments attracted by this company for the period of the annual turnover. As a rule, enterprises in industries with high capital intensity have low turnover indicators, and wholesale firms have high turnover indicators.