Acc 400 - Current and Noncurrent Assets Paper

Current and Noncurrent Assets Paper

JoThaddeus Morgan

ACC/400

December 19, 2011

Theresa Pekron

Current and Noncurrent Assets Paper

The accounting department within any organization is a vital component in the maintenance of revenue budgets and calculated gains or loses. Understanding assets and their importance to the accounting process is vital for any organization. Assets are resources owned by a company, which is expected to expand the value of the organization or benefit the operations. Assets can be divided into two categories current, and noncurrent. This classification of assets is helpful because it helps establish if the company has enough assets to pay its debts when they come due (Kimmel, Weygandt & Kieso, 2007). The following paragraphs will discuss current and noncurrent assets, and the differences between the two assets. Also addressed in the paper is the order of liquidity and how the order of liquidity applies to the balance sheet.

Current Assets

Current assets can be defined, as any item a business owns to be consumed or converted into cash within one business cycle, usually defined as a year. Current assets are quickly liquidated and are important to companies because they are a source of funds for the day-to-day operations of the business. Current assets typically are assets a company expects to convert to cash distinguish within one year (Kimmel, Weygandt & Kieso, 2007, p. 49). Some examples of current assets include: cash, accounts receivable, notes receivables, prepaid assets, and any other liquid assets easily converted to cash (Investopedia, 2010).

Current assets can be positioned within five areas 1) cash or cash equivalents, such as in the form of cash, stocks, or money market funds. 2) Short and long term investments, such as bonds that provide a larger return on investment and accomplished quarterly. 3) Accounts receivable, which is revenue owed to any business for its services or product, and it is usually collected quarterly. 4) Any inventory item in the form of finished products or raw materials. It is vital to a business to establish revenue such that the rate of overturn in product is greater than the rate of production. 5). The last is Prepaid Expenses, which are those expenses currently already paid as liquidated to suppliers and service providers.

Noncurrent Assets

Noncurrent assets, unlike current assets are not readily convertible to cash and not expected to become cash within the year. Noncurrent assets can be though of as the opposite of current assets. Examples can include fixed assets, leasehold improvements, long-term investments, and Property,