Individual Assignment: Current and Noncurrent Assets
Prepare a 700- to 1,050-word paper comparing and contrasting current and noncurrent assets. In your paper, address the following: What are current assets? What are noncurrent assets? What differs between current and noncurrent assets? What is the order of liquidity? How does the order of liquidity apply to the balance sheet? Format your paper consistent with APA guidelines. You must cite all references. If you used an electronic source, include the URL. If you used a printed source or reference pages from the Virtual Organizations, attach a copy of the data to your paper.
snipet of the paper,......
Current and Noncurrent Assets
Student
ACC/440
Date
Instructor
The accounting department within any organization is a vital component in the maintenance of revenue budgets and calculated gains or losses. Understanding assets and their importance to the accounting process is vital for any organization. Assets are resources owned by a company, which is expected to expand the value of the organization or benefit the operations. Assets can be divided into two categories current, and noncurrent. This classification of assets is helpful because it helps establish if the company has enough assets to pay its debts when they come due (Kimmel, Weygandt & Kieso, 2007). The following paragraphs will discuss current and noncurrent assets, and the differences between the two assets. Also, it will address the order of liquidity and how the order of liquidity applies to the balance sheet.
Current Assets
Current assets, also known as short-term, “are cash and other resources that are reasonably expected to be realized in cash or sold or consumed within one year of the balance sheet date or the company's operating cycle, whichever is longer”. Current assets are also a balance sheet that will equal the total of cash equivalents and cash, prepaid expenses, marketable securities, accounts receivable, inventory, and additional assets that can be changed into cash within the operating cycle. Creditor’s interest will always be in the financial health of a business to make sure it has existing assets, since these assets can make the difference if the company goes bankrupt, then the assets ban be easily liquidated. Furthermore, current assets are very important because it is the basis of funds for the everyday operations (Schneider, 2013).
Noncurrent Assets
Noncurrent assets, also known as long-term, are assets that are not easily converted into cash or that are not expected to turn into cash within the following year. Examples of noncurrent assets include leasehold improvements, intangible assets, and fixed assets. Noncurrent assets are the complete opposite of current assets.
The Difference of Current and Noncurrent Assets
A current asset is the same as cash, an asset or other resource, reasonably expected to be converted or sold into cash to pay for current liabilities, as long as those liabilities are within the operating cycle. Furthermore, current assets can also constitute as any cash equivalents, such as short-term investments or accounts receivable. In contrast, noncurrent assets are those that cannot be converted into cash, they cannot be exchanged, and they cannot be sold within the operating cycle. However, there are some companies whose operating cycle is longer than a year. In such cases, the current versus non-current classification would be based on a period longer than a year after the balance sheet date.
The Order of Liquidity
The order of liquidity is the organization of assets on a balance sheet based on how long the asset will take to liquidate. For example, cash would be listed at the top and then would be followed by any other asset that could quickly be turned into cash.
The Order of Liquidity and the Balance Sheet
The order of liquidity and the balance sheet refers largely to equivalent of cash assets noted on the balance sheet of a company. Much like non-financial companies balance sheet liquidity is often calculated by a short-term liquid asset on the balance sheet. For business such as banks, managing their liquidity very close is extremely essential because the balance sheet liquidity reflects a precise breakdown, by maturity of their assets and liabilities, mainly of those that are short term. Furthermore, when a company is funding themselves is often identified as funding liquidity and the common factor in this concept would be that liquidity provides the ability to obtain cash by either turning assets into cash on short notice or having access to credit (Schneider, 2013).
Reference
Kimmel, P.D., Weygandt, J. J., & Kieso, D.E. (2007). Financial accounting: Tools for business decision making (4th ed.). Hoboken, Nj: John Wiley & Sons.
Schneider, B. (2013). Investopedia. Retrieved from http://www.investopedia.com/university/accounting/accounting5.asp
