What is a Current Asset? (Explained with an example)
WHAT IS A CURRENT ASSET?
Current assets are vital to understanding business basics and business essentials in financial accounting. This video explains what is a current asset in accounting.
Current assets are short-term resources owned by a business. These assets are likely to be used, sold, or converted into cash within one year. They also help keep the business running smoothly by covering the short-term expenses and obligations of the business. Examples of current assets typically include; cash, which is the money the business has on hand or in the bank. Trade receivables, which is money owed to the business by customers. Inventory, which is goods or materials that the business intends to sell. Prepayments, which are payments made in advance by the business for services. And finally, short-term investments. And this could be investments that can quickly be converted back into cash. Let's go back to our friend Redd and their delivery company. Here are some examples of current assets in their business. Firstly, they may have cash in the bank. So, Redd has money in the business account to cover daily expenses such as fuel for the delivery vans and also paying wages for the delivery drivers. Secondly is inventory. Redd may keep a stock of materials for branded packaging of the delivery boxes. And thirdly, prepaid insurance. Redd may have paid upfront for a six month policy to insure the delivery vans. All of these three are current assets because; it is used in the business, they will either be used up, sold, or turned into cash and also done so within a year.
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0:00 Introduction
0:32 Current Assets
1:13 Example
2:18 Closing
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