Difference between current assets and non current assets in business studies

Answer 1

In business, current assets and non-current assets are two broad categories used to classify an organization's assets based on their liquidity and lifespan. The main differences between current assets and non-current assets are as follows:

1. Liquidity: Current assets are more liquid and can be easily converted into cash within one year or the normal operating cycle of a business. Non-current assets are less liquid and may take more than a year to be converted into cash.

2. Timeframe: Current assets are expected to be used up or converted into cash within a relatively short timeframe, usually within one year, such as inventory, accounts receivable, and cash and cash equivalents. On the other hand, non-current assets have a long life that extends beyond one year, such as property, plant, and equipment (PPE), long-term investments, and intangible assets.

3. Purpose: Current assets are used to support day-to-day operations of the business and ensure its ongoing functioning, such as purchasing inventory, providing credit to customers, and meeting short-term obligations. Non-current assets are used for long-term business activities and help generate revenue over an extended period, such as acquiring and maintaining fixed assets or making long-term investments.

4. Valuation: Current assets are recorded at their realizable or market value as they are expected to be converted into cash relatively soon. Non-current assets are recorded at their historical cost, which represents the amount paid to acquire or produce them, with subsequent depreciation or impairment charges over their useful life.

5. Presentation: Current assets are typically presented more prominently in financial statements, such as balance sheets, as they are more relevant to short-term financial analysis and liquidity assessment. Non-current assets are usually listed below current assets and may not receive as much emphasis in day-to-day financial analysis.

Overall, the distinction between current assets and non-current assets enables businesses and stakeholders to understand the liquidity, life span, and operations of an organization more comprehensively.