Difference Between Current and Non-Current Assets
Assets are resources for a business; assets are of two types namely current assets and non-current assets. Current assetsCurrent AssetsCurrent assets refer to those short-term assets which can be efficiently utilized for business operations, sold for immediate cash or liquidated within a year. It comprises inventory, cash, cash equivalents, marketable securities, accounts receivable, etc.read more are those assets which are equivalent to cash or will get converted into cash within a time frame one year. Non-current assetsNon-current AssetsNon-current assets are long-term assets bought to use in the business, and their benefits are likely to accrue for many years. These Assets reveal information about the company's investing activities and can be tangible or intangible. Examples include property, plant, equipment, land & building, bonds and stocks, patents, trademark.read more are those assets which will not get converted into cash within one year and are noncurrent in nature.
Current assets consist of cash and equivalentsCash And EquivalentsCash and Cash Equivalents are assets that are short-term and highly liquid investments that can be readily converted into cash and have a low risk of price fluctuation. Cash and paper money, US Treasury bills, undeposited receipts, and Money Market funds are its examples. They are normally found as a line item on the top of the balance sheet asset. read more, which is generally the first line item on the asset side of the balance sheet when a balance sheet is prepared based on liquidity. Cash equivalents usually are commercial papers that a company invests, which is as liquid as cash. Other current assets are accounts receivablesAccounts ReceivablesAccounts receivables refer to the amount due on the customers for the credit sales of the products or services made by the company to them. It appears as a current asset in the corporate balance sheet.read more, which the amount of money the company owes from the debtors to whom they have sold their goods on credit.
Another significant current asset inventories; any business needs to maintain a certain level of inventory for running the business, both high and low levels of inventory are not desirable by a company. Other current assets include deferred income taxesDeferred Income TaxesDeferred income tax is a balance sheet item that can be either a liability or an asset since it is a difference in income recognition between the firm's accounting records and the tax law, resulting in the company's income tax due being different than the total tax expense reported.read more and prepaid revenue.
You are free to use this image on your website, templates etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Current vs Non-Current Assets (wallstreetmojo.com)
PPE forms the major part of noncurrent assets for a business. Plant machinery and equipment are reported on the balance sheet at book value, which generally the acquisition cost for that hard asset. Companies also depreciate the plants and machinery either through the straight-line methodStraight-line MethodStraight Line Depreciation Method is one of the most popular methods of depreciation where the asset uniformly depreciates over its useful life and the cost of the asset is evenly spread over its useful and functional life. read more or Double Declining methodDouble Declining MethodThe Double Declining Balance Method is one of the accelerated methods used for calculating the depreciation amount to be charged in the company's income statement. It is determined by multiplying the book value of the asset by the straight-line method's rate of depreciation and 2read more.
Net PP&E is reported by the company, which gross PP&E adjusted for accumulated depreciationAccumulated DepreciationThe accumulated depreciation of an asset is the amount of cumulative depreciation charged on the asset from its purchase date until the reporting date. It is a contra-account, the difference between the asset's purchase price and its carrying value on the balance sheet.read more. Other noncurrent assets comprise long term investments, long term deferred tax, accumulated depreciation, and amortization. GoodwillGoodwillIn accounting, goodwill is an intangible asset that is generated when one company purchases another company for a price that is greater than the sum of the company's net identifiable assets at the time of acquisition. It is determined by subtracting the fair value of the company's net identifiable assets from the total purchase price.read more is an example of an intangible asset. Intangible assets are adjusted for amortizationIntangible Assets Are Adjusted For AmortizationAmortization of Intangible Assets refers to the method by which the cost of the company's various intangible assets (such as trademarks, goodwill, and patents) is expensed over a specific time period. This time frame is typically the expected life of the asset.read more, not depreciation.
Current Assets vs. Non-Current Assets Infographics
You are free to use this image on your website, templates etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Current vs Non-Current Assets (wallstreetmojo.com)
Key Differences
- Current assets are those assets that are equivalent to cash or will get converted into cash within a time frame one year. Non-current assets or long term assets are those assets which will not get converted into cash within one year and are non-current in nature.
- The list of current assets includes cash and cash equivalents, short term investments, accounts receivables, inventories, and prepaid revenue. The list of non-current assets includes long term investments, plant property and equipmentPlant Property And EquipmentProperty plant and equipment (PP&E) refers to the fixed tangible assets used in business operations by the company for an extended period or many years. Such non-current assets are not purchased frequently, neither these are readily convertible into cash. read more, goodwill, accumulated depreciation and amortization, and long term deferred taxes.
- Current assets, when sold, are considered as trading profits and are subject to corporate taxCorporate TaxCorporate tax is a tax levied by the government on the profits earned by a company at a fixed rate each year and is calculated in accordance with specific tax regulations.read more. On the other hand, whenever long term assets are sold, that is regarded as capital gain, and capital gain tax is applicable in that case.
- Current assets are not subject to revaluation in general, only in some cases inventories may be subject to revaluation. Long term assets, like PP&E, needs to be revalued by the company. Whenever the market value of a tangible assetTangible AssetAny physical assets owned by a firm that can be quantified with reasonable ease and are used to carry out its business activities are defined as tangible assets. For example, a company's land, as well as any structures erected on it, furniture, machinery, and equipment.read more decreases compared to the book value of that asset. The company needs to revalue that assets book value and the difference is reported as a loss in the income statement for that periodIncome Statement For That PeriodThe income statement is one of the company's financial reports that summarizes all of the company's revenues and expenses over time in order to determine the company's profit or loss and measure its business activity over time based on user requirements.read more.
Comparative Table
| Basis | Current assets | Non-current assets |
|---|---|---|
| Definition | Current assets are those assets that are equivalent to cash or will get converted into cash within a time frame one year. | Noncurrent assets are those assets which will not get converted into cash within one year and are noncurrent. |
| Items | Currents assets include line items like cash and cash equivalents, short term investmentsShort Term InvestmentsShort term investments are those financial instruments which can be easily converted into cash in the next three to twelve months and are classified as current assets on the balance sheet. Most companies opt for such investments and park excess cash due to liquidity and solvency reasons.read more, accounts receivables, inventories, and prepaid revenue. | Noncurrent assets include long term investments, plant property and equipment, goodwill, accumulated depreciation and amortization, and long term deferred taxes assetsDeferred Taxes AssetsA deferred tax asset is an asset to the Company that usually arises when either the Company has overpaid taxes or paid advance tax. Such taxes are recorded as an asset on the balance sheet and are eventually paid back to the Company or deducted from future taxes.read more. |
| Nature | Current assets are the short term resources of a company. | These assets are the long term resources to run the business. |
| Valuation | Generally, current assets are valued in the balance sheet at market prices. | Long term assets are valued in the balance at acquisition cost less accumulated depreciation. For intangible assets, they are valued at cost less depreciation. |
| Goodwill | Not part of current assets | Noncurrent assets can be further subdivided into tangible assets and intangible assets. A most popular intangible assetPopular Intangible AssetIntangible Assets are the identifiable assets which do not have a physical existence, i.e., you can't touch them, like goodwill, patents, copyrights, & franchise etc. They are considered as long-term or long-living assets as the Company utilizes them for over a year. read moreIntangible Assets are the identifiable assets which do not have a physical existence, i.e., you can't touch them, like goodwill, patents, copyrights, & franchise etc. They are considered as long-term or long-living assets as the Company utilizes them for over a year. read moreIntangible Assets are the identifiable assets which do not have a physical existence, i.e., you can't touch them, like goodwill, patents, copyrights, & franchise etc. They are considered as long-term or long-living assets as the Company utilizes them for over a year. read more is goodwill, which is created through acquisition. |
| Tax implications | The selling of the current assets results in the profit from trading activities. | Selling in the long term assets results in the capital gains and capital gain tax is applicable in such a case. |
| Revaluation | Current assets are not subject to revaluation in general; only in some cases, inventories may be subject to revaluation. | Revaluation of PP&E is very common in the case of long term assets. Whenever the market value of a tangible asset decreases compared to the book value of that asset. The company needs to revalue that assets book value, and the difference in reported a loss in the income statement for that period. |
Conclusion
Assets are the resources required by a company to run and grow its business. Current assets and noncurrent assets combined to form the total assetsThe Total AssetsTotal Assets is the sum of a company's current and noncurrent assets. Total assets also equals to the sum of total liabilities and total shareholder funds. Total Assets = Liabilities + Shareholder Equityread more required by a company. Long term assets are required for the long term purposes of business like land equipment and machinery, which are needed for the long term of business.
On the other hand, current assets are the resources that are required for running the day to day operations of a businessOperations Of A BusinessBusiness operations refer to all those activities that the employees undertake within an organizational setup daily to produce goods and services for accomplishing the company's goals like profit generation.read more. The current assets are generally reported in the balance sheet at the current or market price. On the other hand, noncurrent assets are reported in the balance sheetBalance SheetA balance sheet is one of the financial statements of a company that presents the shareholders' equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner's capital equals the total assets of the company.read more at cost price on acquisition adjusted for depreciation/amortization, which is subjected to revaluation whenever the market price decreases compared to the book price.
Recommended Articles
This article has been a guide to the Current vs. Non-Current Assets. Here we discuss the top differences between Current and Non-Current Assets along with infographics and comparison table. You may also have a look at the following articles –
50.3K subscribers
Leave a Reply