Home » Eng Formulas » C » Current assets

Current assets

Current assets

Current assets are assets that can be converted into cash at a relative short notice.

In the formula above, one can expect that accounts receivable is less than the figure listed in the accounts. Certainty of the debtor paying the outstanding amount is and will always be uncertain. Therefore the company must rely on having enough cash at hand to continue purchasing inventory, that in turn can be converted into cash.

Prepaid expenses are another form for short-term financing, as it gives the company a more reliable future. Future expenses that have already been paid, will not diminish the current cash holdings.