What is the Difference Between Current and Noncurrent Assets?
written by: tomdon•edited by: Ronda Bowen•updated: 7/3/2010
Current vs. non-current assets, along with their importance in accounting, are discussed in the article. The main difference between the two is how quick the asset can be liquidated or sold for cash.
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What are Assets?
Every standing business venture needs to command a certain amount of assets, which generate income for the business. The assets might generate real income, or they may generate some facility which would accentuate the income generation process for the company. Assets can be defined as broad resources, having their own distinctive economic value that might be owned and facilitated to produce income for the business. Assets are traditionally shown on the right-hand side of a company balance sheet, and are largely made up of two very distinct divisions, each having their own merits and utilities to the business. The two types of assets are current assets and non-current assets.
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Defining Current Assets
Current assets are those assets that could be sold, lent or leased to produce some sort of an income or generate some value for the business in the near foreseeable future. Usually, current assets can be liquidated within one fiscal year or within one operating cycle for the company.
Unlike fixed or non-current assets, these assets are not long term assets, and they are involved in creating the liquidity of the company. Moreover, they are available to facilitate short term, day-to-day operational investments and costs.
In the balance sheet, current assets consist of particulars like cash at hand, cash in bank, present debtors, receivable bills of exchange as well as other short-term investments, present inventories and prepaid expenditures for future services. These particulars, all included within current assets, are used for exigent financial operations within a relatively short time span.
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Defining Non-Current Assets
Non-current assets (also called fixed assets), are assets that are stationery in nature. Moreover, they tend to remain in the business for a longer period of time. These assets are not involved in the day-to-day operations of the business, and cannot be used to meet short-term, operational obligations of the business.
Fixed assets include immovable property, plant/production units, equipments and in some modern business definitions, also human resources. According to accounting principles followed worldwide, non-current assets generally include land, buildings, motor vehicles, furniture and office property.
Fixed assets are assets whose present value can favorably be accrued to the business at some point of time and thus, indirectly generating an income. It might be noted that unlike current assets, these assets can’t be sold to the general consumer base, or liquidated instantly to cash. In addition to this, fixed assets are liable to undergo depreciation in most cases. Moreover, in many countries they are subject to tax rebates and certain percentage-exemptions as well.
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Current vs. Non-Current Assets
In the current assets vs. non-current assets debate and as far as the operational facet of the company goes, both current and non-current assets are equally important for the company. While current assets are involved and used for ready income-generation, non-current assets are generally involved with profit generation. In most accounting concepts, both current as well as non-current assets can even be intangible assets that generate profit for the venture. Both the assets together account for total revenue generated for a company.