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How do current assets and noncurrent assets differ?

Modified on: 2018/07/13
A:

A company’s resources can be divided into two categories: current assets and noncurrent assets. The primary determinant between current and noncurrent assets is the anticipated timeline of their use. Current and noncurrent assets are listed on the balance sheet. They appear as separate categories before being summed and reconciled against liabilities and equities.

Current Assets

Current assets represent the value of all assets that can reasonably expect to be converted into cash within one year.

Current assets are separated from other resources because a company relies on its current assets to fund ongoing operations and pay current expenses. Examples of current assets include:

  • Cash and cash equivalents
  • Accounts receivable
  • Prepaid expenses
  • Inventory
  • Marketable securities

Noncurrent Assets

Noncurrent assets are a company’s long-term investments where the full value will not be realized within the accounting year. Non-current assets can be considered anything not classified as current.

Examples of non-current assets include:

  • Land,
  • Property, plant, and equipment,
  • Trademarks,
  • Long-term investments and even goodwill.

Since noncurrent assets have a useful life for a very long time, companies spread their costs over several years. This process helps avoid huge losses during years when capital expansions occur. Both fixed assets, like plant and equipment, and intangible assets, like trademarks fall under noncurrent assets.

Noncurrent Liabilities

Noncurrent liabilities are a company's long-term financial obligations that are not due within one fiscal year. Noncurrent assets are resources a company owns, while noncurrent liabilities are resources a company has borrowed and must return.

Liabilities are either money a company must pay back or services it must perform and are listed on a company's balance sheet. Contrary to noncurrent assets, noncurrent liabilities are a company's long-term debt obligations, which are not expected to be liquidated within 12 months.

Examples of noncurrent liabilities include:

  • Long-term lease obligations,
  • Long-term debt like bonds payable.

Bonds payable are used by a company to raise capital or borrow money. Bonds payable are long-term lending agreements between borrowers and lenders. A company usually issues bonds to help finance its operations or projects. Since the company issues bonds, it promises to pay interest and return the principal at a predetermined date, usually more than one fiscal year from the issue date. Investors are interested in a company's noncurrent liabilities to determine whether a company has too much debt relative to its cash flow.

For more on this topic, please read "How the Income Statement and Balance Sheet Differ?"


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