What is included in the calculation of current assets?

Current assets consist of resources that a company expects to convert into cash or use within one year. This includes cash itself, accounts receivable, inventory, and other short-term investments. The defining characteristic of current assets is their liquidity; they are expected to be liquidated or consumed in the short term, which aligns with the principle of current asset classification.

While investments owned by a company may also hold value, not all of them are classified as current assets since some may be long-term investments. Long-term fixed assets are excluded from current assets as they are meant to provide value over a longer duration, typically beyond one year. Similarly, liabilities do not fall under the category of assets; instead, they represent obligations that a company needs to settle in the future. Understanding the classification of current assets is important for assessing a company’s short-term financial health and operational efficiency.