Current assets are located in the beginning of the assets section of the balance sheet. This part of the balance sheet contains those assets most easily convertible into cash in the short-term. Each of the current asset line items is positioned on the balance sheet based on its comparative ability to be converted into cash (called the order of liquidity).
Current Assets are a balance sheet account that represents the value of all assets that can reasonably expected to be converted into cash within one year. Current assets include cash and cash equivalents, accounts receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be readily converted to cash.
Thus, current assets are usually listed on the balance sheet in the following descending order:
- Cash. Includes cash in savings and checking accounts, as well as petty cash.
- Marketable securities. Includes all securities that are readily convertible into cash, typically within a few days.
- Accounts receivable. These are trade receivables with customers, and may also include other receivables, such as those with employees, if these items can be collected within one year.
- Inventory. This is usually the least liquid of the current assets, since inventory can only be sold if there is demand for it, and it can be converted into finished goods.
There may be a subtotal on the balance sheet for all current assets. This is especially useful when calculating the current ratio, which divides current assets by current liabilities.