Current and non-current assets. Definitions and differences

Riskallay

21/3/2023

7 min

Assets are resources, i.e., goods and rights owned by the company, which are used to carry out the business line, and are financed with equity or third party capital.

The difference between current and non-current assets lies in the time required to convert the assets into cash or cash equivalents.

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What is a company's current assets?

Current assets are assets that can be converted into cash or cash equivalents within 12 months after the end of the business year, and can be used to pay expenses and debts in the short term.

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Types of Current Assets

Current assets contain items used to group accounting accounts that represent the company's assets and rights that can be liquidated in the short term:

CURRENT ASSET

I - Cash and cash equivalents.

II - Short-term financial investments. Includes: investments in foreign currency, short-term securities, among others.

III - Short-term investments in group and associated companies.

IV - Trade and other receivables. Includes: customers for sales and services rendered, private accounts of shareholders or partners for required disbursements, other debtors.

V - Short-term accruals. Includes prepaid debts and asset accrual accounts.

IV - Inventories: these are the company's exchange goods, i.e., inputs, products in manufacturing processes, finished products, merchandise.

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Examples of Current Assets

Some examples of current asset accounts are:

Very high liquidity in the short term: cash, fixed fund, current account banks, savings banks.
High liquidity in the short term: fixed-term banks, foreign currency, securities, shares acquired for a short period of time, short-term negotiable obligations.
Average liquidity in the short term: customers for sales, delinquent customers, private accounts of shareholders or partners, debts or prepaid expenses, positive unearned interest (subtracted).
Regular liquidity in the short term: merchandise, supplies, products in process, finished products, some goods for use that end their useful life within 12 months after the end of the fiscal year.

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Related content:

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What is a Company's Non-Current Assets?

Non-current assets are assets that can be converted into cash or cash equivalents within 12 months after the end of the fiscal year, and can be used to pay expenses and debts in the long term.

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Types of Non-Current Assets

Non-current assets include items used to group accounting accounts that represent the company's long-term assets and rights, as follows:

NON-CURRENT ASSETS

I - Deferred Tax Assets

II - Long-term financial investments.

III - Long-term investments in group and associated companies.

IV - Property, plant and equipment: these are the assets used by the company.

V - Real estate investments.

VI - Intangible assets.

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Examples of Non-Current Assets

Some examples of non-current asset accounts:

High long-term liquidity: deferred tax assets (only in legislations that adopt this technique of exposing income tax or income tax on the balance sheet), investments in securities and similar with the intention of holding them in the long term.
Long-term average liquidity: investments in shares in other companies (exercising simple long-term participation, significant influence, joint control or control over the other companies), investments in real estate, vehicles, vessels, machinery, facilities, computer equipment, other specialized equipment, long-term loans, positive unearned interest (placed by subtracting).
Low liquidity in the long term: receivables in legal proceedings, positive interest not accrued (placed by subtracting).
Very low liquidity in the long term: trademarks, invention or industrial patents, business keys, among other assets liquidable after 12 months following the end of the fiscal year.

However, intangible assets can represent 95% of the real value of the business, since in the 21st century successful companies are recognized by their brand, patents, clientele, reputation, etc.

Differences between Current and Non-Current Assets

It should be noted that current assets and non-current assets have other substantial differences:

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Current Assets: Liquidity term of less than one year.
Non-Current Assets: Term of liquidity greater than one year.

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Current Assets: Used to pay short-term debts.
Non-Current Assets: Used to pay long-term debts.

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Current Assets: The company's intention is to hold them for a short period of time.
Non-Current Assets: The company's intention is to maintain them for a long period of time.

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Current Assets: They become non-current when applied to investments intended to be held in the long term.
Non-Current Assets: They become current after the close of the fiscal year, totally or partially, as the case may be.

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Current Assets: They become non-current when, for example, current receivables go into receivable management.
Non-Current Assets: They become current when, for example, it is decided to provide for the prepayment of long-term debts in the short term.

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