January 26, 2022

SB-Accounting

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Key Differences between current assets and current liabilities

Key Differences: current assets and current liabilities
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In this article, the distinction between current assets and liabilities is examined. The key point is that both are available for a period of one to twelve months. Let’s begin!

Six differences between current assets and current liabilities

Definition: Current assets are cash and other assets available, within a year, for use by the firm. Current liabilities are obligations or debts which the entity must pay within one year.

Type: Current assets are a type of assets. Current liabilities are a type of liabilities.

Examples: Examples of current assets are cash and cash equivalent, account receivables, inventory, short term investments accrued expenses and prepaid income.

Current liabilities examples are account payables, current portion of long term debt, a loan from friend and family, bank overdraft, bank loan that are within a short period.

Cash flow: For current assets, it is expected to result in cash inflow. But current liabilities result from cash outflow.

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Position in the statement of financial position: Current assets appear as first headline items in the statement of financial position of financial institutions and second headlines for nonbanks (e.g manufacturing business).

Current liabilities, however, appears as below assets (and in some cases capital) in a statement of financial position.

Conclusion

The above differences may also apply for the distinction between noncurrent assets and liabilities. However, there might be some alterations as you can see here.

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