How to calculate current assets (with definition and types)

By Indeed Editorial Team

Published 20 September 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

For organisations to be successful, they require a sound understanding of their finances at all times. One important measure of an organisation's finances is its current asset value. If you're interested in accounting or how organisations operate, understanding how current assets work may be useful. In this article, we explain what current assets are and how to calculate current assets, with some further examples and types to help you understand this concept.

What are current assets?

Current assets are a type of asset you may easily sell for cash. Current assets are all the assets an organisation may use in its day-to-day operations or those which may be sold within one year. They're the opposite of non-current assets, which are difficult to sell. Current assets are sometimes also referred to as 'liquid assets' because of the liquidity they provide.

You may use current assets to pay for daily operational expenses or other short-term financial commitments. Organisations sell, consume and use these assets in their day-to-day operations. Short-term assets include cash and cash equivalents, inventory and stock, short-term investments, accounts receivable and expenses paid ahead of time. The formula for calculating current assets is:

Current assets = Cash and cash equivalents + Inventory and stock + Short-term investments + Accounts receivable + Prepaid expenses

How to calculate current assets

Learning how to calculate current assets is a simple process if you know what to include. Follow the steps below to calculate current assets for your organisation:

1. Determine the amount of cash and equivalents

Determining how much cash and cash equivalents you have is one of the easiest forms of current assets to calculate, as you already have it as a figure. Other than physical cash, be sure to include petty cash, foreign currency and money in savings, transactional or cheque accounts. You may also include undeposited cheques as cash. Don't include credit as a current asset. Add up these items to determine the amount of cash and cash equivalents.

Related: What are intangible assets and why are they important?

2. Value all inventory and supplies

Putting a value on the inventory you have at hand is simple. First, count how much stock you have and multiply it by the value at which you may sell each item to give you the value of your inventory. Estimating the value of your supplies may be trickier. You may estimate the price at which you sell your supplies by considering the price you bought them for, the price they sell for at the current rate and how old the supplies you bought are. Once you've done this, add the total value of your inventory and supplies together.

Related: Assets vs. liabilities: definition, differences and examples

3. Calculate the sum of all short-term investments

The next step is to identify the short-term investments you have. Include the value of all investments that mature within a year or those you may sell within a year. Add the value of all these investments together.

Related: What is an asset under management? (Types and importance)

4. Determine current accounts receivable

Review your sales records to determine how much you've invoiced but haven't yet received payment for. You may also include the total value of all subscriptions customers have with you. Once you have these values, sum them up to determine your current accounts receivable.

Related: What are net assets? (Definition, formula and examples)

5. Tally up all prepaid expenses

You may easily calculate prepaid expenses as you have a value for how much you spent on each expense. List the values of all the prepaid expenses, including utility services, insurance premiums, rent or any other expenses you paid for in advance. Once you have all the values, simply add them all together.

Related: What are business assets? Definitions and examples

6. Calculate current assets

Once you have a value for all your current assets, you're ready to calculate your total current assets. Use the formula below to calculate your current assets:

Current assets = Cash and cash equivalents + Inventory and stock + Short-term investments + Accounts receivable + Prepaid expenses

Related: 21 tangible asset examples (including the formulas)

Examples of calculating current assets

Here's an example of a current assets calculation:

Pauline's Pastries, a small bakery in Hackney, wants to calculate its current assets to evaluate short-term financial health. Upon review, they found the following assets in each category:

  • Cash available: Pauline's Pastries keeps £200 in petty cash available in the building, £2,000 in a business transactional account and £10,000 in savings.

  • Inventory: Pauline's Pastries keeps only £1,000 of inventory directly available at any given time. They also usually have £300 worth of ingredients available that they may use to create their product and sell.

  • Short-term investments: As a small business, Pauline's Pastries hasn't yet developed any short-term investments.

  • Accounts receivable: At the time of their calculations, Pauline's Pastries has £2,000 of unpaid invoices outstanding with their local retail partners. They may call these invoices in to liquidate their accounts receivable.

  • Prepaid expenses: Pauline's Pastries has a prepaid one-year insurance policy worth £1,200. Although they cannot liquidate this expense, it counteracts a portion of expenses, and thus, they may consider it as part of their current assets.

They add up the current assets in each category:

Cash and cash equivalents = £200 + £2,000 + £10,000 = £12,200

Inventory and stock = £1,000 + £300 = £1,300

Short-term investments = £0

Accounts receivable = £2,000

Prepaid expenses = £1,200

They then use the current asset formula to calculate their current assets:

Current assets = Cash and cash equivalents + Inventory and stock + Accounts receivable + Prepaid expenses + Short-term investments

Current assets = £12,200 + £1,300 + £2,000 + £1,200

Current assets = £16,700

They determine that their current assets are worth £16,700. Pauline's Pastries is comfortable with this number and may use it as leverage when applying for credit or appealing to investors.

Current asset types

Cash is the most obvious form of current asset, although there are other forms. Here are the most common types of current assets:

Cash and cash equivalents

Cash and cash equivalents include physical cash in the form of notes and coins. This includes money kept in petty cash or foreign currency. It also includes money kept in a bank account that acts as a savings, transactional or cheque account. You may also consider undeposited cheques as cash. Note that you cannot consider credit provided by a bank or other financial institutions to be a current asset.

Related: What is an asset? Plus how to acquire and how they work

Inventory and supplies

Inventory refers to the stock on hand that you may sell. Supplies refer to raw materials you may use to create the stock you sell. The value of inventory and supplies at any given time is the value you may sell them for at that time.

Related: What are fixed assets? (With definition and examples)

Short-term investments

Short-term investments are investments that mature in less than a year. Investments such as stocks and bonds are good examples of short-term investments, as you may sell them relatively quickly. Other investments include fixed deposits, money market accounts or high-yield savings accounts.

Related: Asset classes: 6 types with advantages and disadvantages

Accounts receivable

Accounts receivable refers to any invoices you've sent to customers for goods or services rendered for which you haven't been paid. This is effectively money that's owed to you but which you haven't yet received. This may also include subscriptions where customers pay you monthly for goods or services rendered.

Related: What are current assets and how can you calculate them?

Prepaid expenses

Prepaid expenses are expenses you've already paid for ahead of time. They may include anything you paid for in advance, such as utility services, insurance premiums and rent. You include these prepaid expenses when calculating your current assets, as they represent future expenses you're no longer required to fulfil.

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