Week 2 Individual Assignment: Current N Noncurrent Assets Essay
September 16, 2013
The accounting department within any organization is a vital component in the maintenance of revenue budgets and calculated gains or losses. 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 …show more content…
The Difference of Current and Noncurrent Assets A current asset is the same as cash, an asset or other resource, reasonably expected to be converted or sold into cash to pay for current liabilities, as long as those liabilities are within the operating cycle. Furthermore, current assets can also constitute as any cash equivalents, such as short-term investments or accounts receivable. In contrast, noncurrent assets are those that cannot be converted into cash, they cannot be exchanged, and they cannot be sold within the operating cycle. However, there are some companies whose operating cycle is longer than a year. In such cases, the current versus non-current classification would be based on a period longer than a year after the balance sheet date.
The Order of Liquidity The order of liquidity is the organization of assets on a balance sheet based on how long the asset will take to liquidate. For example, cash would be listed at the top and then would be followed by any other asset that could quickly be turned into cash.
The Order of Liquidity and the Balance Sheet The order of liquidity and the balance sheet refers largely to equivalent of cash assets noted on the balance sheet of a company. Much like non-financial companies balance sheet liquidity is often calculated by a short-term liquid asset on the