What are current assets?
Current assets are cash or assets that can be converted into cash within one year. Current assets are important because they're used to finance a company's short-term obligations, such as inventory and accounts payable. Current assets are also used to finance a company's working capital, which is the money that a company needs to keep on hand to pay for its day-to-day expenses.
Types of current assets
There are several different types of current assets, including cash, marketable securities, accounts receivable, inventory, and prepaid expenses.
Importance of current assets
Businesses need current assets to fund their short-term financial obligations and day-to-day operations. Current assets can also serve as an indicator of an organization's cash flow and liquidity, which point to its financial health.
How are current assets used?
Current assets are used to finance a company's short-term, everyday expenses. This can include inventory costs and accounts payable but also expenses like rent and utility bills.
What are the benefits of current assets?
It's beneficial for a company to hold current assets because they allow the company to fund its upcoming financial obligations. Beyond that, current assets offer investors and other stakeholders transparency around the company's liquidity and cash flow and indicate its short-term financial health.
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