What to Consider as Current Liabilities and Assets?
Accountants, lenders, and business owners occasionally have different ideas with regard to this matter.
Current assets refer to cash and anything which you can convert into cash in the period of time at issue. For instance, you can sell or liquidate your stock for cash in a relatively easy way, so that is a current asset. Usually, current assets include the following.
- Accounts receivable
- Cash in bank accounts
- Stocked inventory
- Interest payable (in the event you have loaned money to a different business).
- Short-term investments, such as stocks and bonds which your business holds in a different company.
Current liabilities refer to any expenses or loans which you owe in the time period in question. Current liabilities usually include the following.
- Accounts payable
- Short-term business loan payments which are due in the calculation period.
- Accrued expenses for the period thereof, like loan interest, wages, and taxes.
- The portion of all long-term loans which you need to pay in the period.
Outlining your company’s liabilities and assets and calculating its working capital lets you identify business risks. For example, if your business has plenty of money that is tied up in equipment, real estate, and other long-term assets, then you will face difficulty in paying your invoices when due. Ideally, every small business has to strive for a trade-off between liquid and fixed assets.